TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED(a)
------------------- --------------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Depositary shares each representing New York Stock Exchange
one-fourth of a share of 8- 7/8%
Series A Cumulative Preferred Stock,
par value $1 per share
(a) In addition, shares of Common Stock of the registrant are listed on certain
stock exchanges in Switzerland and Germany.

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (a) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (b) has been subject to such filing
requirements for the past 90 days. Yes X No .
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 16, 1996, 154,324,142 shares of the registrant's Common Stock,
par value $1, were issued and outstanding. The aggregate market value of the
registrant's voting stock held by non-affiliates of the registrant as of
September 16, 1996 was approximately $6.4 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1996 Annual Report to Stockholders are incorporated
by reference in Part II hereof.
Portions of the registrant's Proxy Statement for its 1996 Annual Meeting of
Stockholders, scheduled to be held on November 14, 1996, are incorporated by
reference in Part III hereof.
================================================================================
2
PART I
ITEM 1. BUSINESS
GENERAL
Digital Equipment Corporation, a Massachusetts corporation founded in 1957, is a
world leader in implementing and supporting networked platforms and applications
in multivendor environments. Building on its core competencies in software,
systems, networks, and services, Digital -- working with its business partners
- -- provides a complete range of information processing solutions from personal
computers to integrated worldwide networks. The Corporation does business in
more than 100 countries, deriving more than 60% of its revenue from outside of
the United States and developing and manufacturing products in the Americas,
Europe and Asia-Pacific.
The term "Corporation" when used herein refers to Digital Equipment Corporation
or Digital Equipment Corporation and its subsidiaries, as required by the
context.

For the last five fiscal years, the percentage of total operating revenues
contributed by the Corporation's principal classes of products was as follows:

Service and other revenues are derived principally from Digital and multivendor
hardware and software product services and systems and network integration
services.
PRODUCTS
Most of the Corporation's systems are general purpose digital computers,
designed to perform, interpret and record computations on collected data or act
as servers providing computing resources across a network. The Corporation
offers a broad range of computer clients and servers based on Digital's
Alpha(TM) and VAX(R) architectures, and the Intel(R) X86 and Pentium(R)
architectures.
Alpha-based systems: The Corporation's 64-bit, reduced instruction set
computing ("RISC") architecture known as "Alpha(TM)" is designed to support
multiple operating systems and to be the foundation for a leading high
performance computer system family. The Corporation offers a complete line of
Alpha-based products, ranging from chips and boards to high performance
workstations and servers to larger general purpose computer systems. Alpha
supports three major operating systems: Digital UNIX(R)-- the Corporation's
64-bit UNIX(R) operating system, the Corporation's OpenVMS(TM) operating system
and Microsoft Corporation's ("Microsoft") Windows NT(R) operating system.
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In fiscal year 1995, the Corporation introduced its 64-bit AlphaServer 8400
enterprise server, a high-end platform for data warehousing, transaction
processing and scientific and technical computing environments. This server
performs features typically performed by mainframe systems at a cost
substantially below the cost of such systems. In fiscal year 1996, the
Corporation introduced its AlphaServer 4100 system, a midrange server offering
very large memory (VLM) technology, and the ability to store and process large
amounts of information quickly and cost-effectively. The AlphaServer 4100 system
is used for memory and transaction-intensive applications such as Internet
commerce, corporate intranets and general business computing.
Vax and Intel-based Systems: The Corporation's offerings include a line of VAX
systems and servers, from VAXstation(TM) workstations to high performance
servers which support the Corporation's OpenVMS operating system.
In addition, the Corporation offers a full range of Intel-based and industry
compatible personal computers, servers and network hardware and desktop
integration products. These products support Microsoft's Windows(R), Windows
95(R) and Windows NT operating systems.
Storage Systems, Microprocessors, Components and Network Products: The
Corporation's offerings include its StorageWorks family of peripheral and data
storage products for use with its computer systems which are designed to provide
high-performance, flexible and scaleable enterprise-wide storage solutions in
multivendor environments.
The Corporation has developed, and manufactures and sells a family of high
performance, 64-bit Alpha microprocessors which are used in sophisticated
computer applications, including visual computing applications such as video
conferencing, video editing and animation.
The Corporation is also a manufacturer and supplier of network components, such
as hubs, routers and switches. The Corporation's enVISN (Enterprise Virtual
Intelligent Switched Network) open network architecture creates flexible virtual
networks linking users in different groups and sites by combining virtual LAN
(local area network) technology, distributed routing and high speed switching
with centralized, policy-based administration.
Software: The Corporation designs, develops or acquires from third parties and
distributes under license various software products for use on its computer
systems and computer systems from other vendors. The Corporation, independently
and through partners, offers software products consisting of operating systems,
communication and networking software, run-time services (such as
data/information handling and graphical user interfaces), language compilers,
productivity tools, production systems (including databases and transaction
processing monitors), office and workgroup software frameworks and other
application software.
The Corporation's software offerings are intended to promote open client/server
computing and, to this end, are designed to industry-standard interfaces that
enable applications to work across different platforms and operating systems and
enable customers to integrate and manage multivendor environments. For example,
the Corporation's Pathworks client and server products are designed to integrate
the major network operating systems and provide users of personal computers with
access to network resources and data. In addition, the Corporation has
developed, in partnership with Microsoft, the Common Object Model, a set of
software standards that are designed to enable
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software objects in different operating systems, data formats and geographical
locations to work together across a network.
During fiscal year 1996, the Corporation made available without charge over the
Worldwide Web its AltaVista Internet Search Service which helps Internet users
find information anywhere on the World Wide Web or in Internet news groups. The
Corporation believes that the AltaVista Internet Search Service is among the
fastest and most comprehensive Web indices available. The Corporation offers a
growing portfolio of software products and services for the emerging integrated
Internet/intranet environment.
SERVICES
The Corporation provides a comprehensive portfolio of technical consulting and
integration and support services to help customers plan, implement and manage
their information technology solutions.
The Corporation's service offerings include maintenance and support services for
the Corporation's products, as well as for products manufactured by other
companies; information systems consulting; technical and application design
services; systems integration and project management services; network design,
integration and support services; and outsourcing and resource management
services. During fiscal year 1996, the Corporation sold its learning services
business.
The Corporation's services organizations provide a full range of multivendor
customer services through a global network of employees and partners. The
Corporation has established a number of services alliances with companies in the
information technology industry, including, among others, alliances with
Microsoft, Computer Associates International, Inc. ("Computer Associates"),
Novell Corporation, Compaq Computer Corporation.
STRATEGIC ALLIANCES AND FISCAL 1996 DEVELOPMENTS
During fiscal year 1996, the Corporation established or enhanced strategic
alliances with several major software and telecommunications companies.
Microsoft: In August 1995, the Corporation and Microsoft formed the Alliance
for Enterprise Computing, involving joint initiatives by the Corporation and
Microsoft in the areas of marketing, sales, support and product development. In
particular, the Corporation is working with Microsoft to develop an integrated
systems environment and a comprehensive set of tools and utilities that will
enable customers and software developers to write applications on Windows NT and
deploy them easily on both Windows NT and OpenVMS systems. The Corporation is
also working with Microsoft to develop a 64-bit version of Windows NT which
would support Alpha as its first systems architecture. In addition, the
Corporation has been designated a preferred systems integration and support
provider for Microsoft's "Normandy" Internet Service Provider platform.
Oracle: In fiscal year 1995, the Corporation sold its relational database
business to Oracle Corporation ("Oracle") and formed an alliance with Oracle
focused on the implementation of 64-bit Oracle database products on the
Corporation's Alpha systems. Such very large database and data warehousing
applications, when running on the Corporation's Alpha systems, process data
significantly faster than on current 32-bit enterprise systems.
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MCI/Microsoft: In April 1996, the Corporation announced an alliance with MCI
Communications Corporation ("MCI") and Microsoft under which MCI will deliver
Internet and Intranet products and services, such as mail and messaging, to MCI
subscribers based upon the Corporation's Alpha servers, Microsoft's Windows NT
operating system, and Exchange and Internet Explorer software products, and
backed by the Corporation's support and systems integration services.
Computer Associates: In April 1996, the Corporation and Computer Associates
established the Alliance for Enterprise Management involving the purchase by
Computer Associates of certain network management system products from the
Corporation, and joint sales and marketing activities to promote the network
management products and services offered by the Corporation and Computer
Associates. As part of the alliance, the Corporation has been designated a
preferred service provider by Computer Associates.
Samsung: At the end of fiscal year 1996, the Corporation entered into an
arrangement with Samsung Electronics Co., Ltd. ("Samsung") through which it has
granted Samsung the right to manufacture and market the Corporation's Alpha
microprocessors and incorporate them into its computer systems and other
products.
SALES AND DISTRIBUTION
The Corporation directly sells, markets and supports its products and services
through multiple locations throughout the world. Arrangements with third
parties, including software developers, value added resellers (VARs) and
authorized distributors, are an increasingly important part of the Corporation's
focus on providing complete solutions to its customers and expanding
distribution of its products and services through indirect channels.
For the fiscal year ended June 29, 1996, approximately 4.5% of the Corporation's
total operating revenues were derived directly from sales to various agencies of
the U.S. Government, and no other customer of the Corporation accounted for more
than 2.5% of total revenues.
The Corporation believes that the dollar amount of backlog is not a meaningful
indication of future revenues and historically has not published such data. It
has been and continues to be the Corporation's objective to minimize the time
from the receipt of a purchase order to delivery of the product.
INTERNATIONAL OPERATIONS
Sales by the Corporation to customers outside the United States amounted to 66%,
65% and 62% of total operating revenues for the fiscal years ended June 29,
1996, July 1, 1995 and July 2, 1994, respectively. International sales and
marketing operations are conducted through subsidiaries, by direct sales from
the parent company, by resellers and through various representative and
distributorship arrangements.
The Corporation's international business is subject to risks customarily
encountered in foreign operations, including fluctuations in monetary exchange
rates, import and export controls and the economic, political and regulatory
policies of foreign governments.
See Notes A, B, C and I of Notes to Consolidated Financial Statements,
incorporated by reference herein, for further information on the Corporation's
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international operations, including financial information concerning the
Corporation's operations by major geographical area.
COMPETITION
The information technology industry is highly competitive, international in
scope and comprised of many companies. The methods of competition include
marketing, product performance, price and service, among others. Present and
potential competition in the various markets served by the Corporation comes
from firms of various sizes and types, some of which are larger and have greater
resources than the Corporation. Firms not now in direct competition with the
Corporation may introduce competing products in the future. It is possible for
companies to be at various times competitors, customers and collaborators in
different markets.
MATERIALS
The Corporation obtains a wide variety of components, assemblies and raw
materials from a substantial number of suppliers. The Corporation has
established or has available alternate sources of supply for many of these
materials. The Corporation believes that the materials required for its
manufacturing operations are presently available in quantities sufficient to
meet demand; however, a portion of the Corporation's manufacturing operations is
dependent on the timely delivery of certain sub-assemblies and components from
significant suppliers. The failure of such suppliers to deliver such items on a
timely basis could adversely affect the Corporation's results of operations
until alternative sources of supply could be arranged.
ENVIRONMENTAL AFFAIRS
The Corporation's facilities are subject to numerous laws and regulations
designed to protect human health and safety and the environment. Under
applicable state laws, the Corporation is incurring costs in connection with the
investigation and remediation of certain properties owned and/or operated by the
Corporation. Pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 ("CERCLA"), as amended, the Corporation has been
notified that it is a potentially responsible party ("PRP") for and is sharing
the costs of investigating and cleaning up certain sites listed on the federal
National Priorities List of Superfund Sites. In the opinion of the Corporation,
compliance with these laws and regulations has not had and should not have a
material effect on the Corporation's capital expenditures, results of operations
or financial condition.
PATENTS
The Corporation owns or is licensed under a number of patents and patent
applications relating to its products. While the Corporation's portfolio of
patents and patent applications is of significant value to the Corporation, the
Corporation does not believe that any particular patent or group of patents is
of material importance to the Corporation's business as a whole.
RESEARCH AND ENGINEERING
The Corporation is in an industry which is characterized by rapid technological
change. In the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994,
the Corporation spent $1.06 billion, $1.04 billion and $1.30 billion,
respectively, for research and engineering (R&E). The Corporation believes that
its level of R&E spending as a percentage of total operating
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7
revenues is appropriate to support current operations and to offer competitive,
market-driven products.
EMPLOYEES
The Corporation had approximately 59,100 employees worldwide at June 29, 1996.
EXECUTIVE OFFICERS OF THE CORPORATION

The following table sets forth the names and ages of the nine executive officers
of the Corporation and certain information relating to their positions held with
the Corporation.

- ---------------
Executive officers of the Corporation are elected annually and hold office until
the first meeting of the Board of Directors following the annual meeting of
stockholders and until their successors have been chosen and qualified. All of
the executive officers named have been officers or held managerial positions in
the Corporation for at least the last five years, except for Mr. Ferrales and
Mr. Copperman. Prior to joining the Corporation, Mr. Ferrales served as
President of OMC Group, an organization and management consulting firm, from
June 1994 to June 1995, and from January 1989 to June 1994 he was Vice
President, Human Resources of Dell Computer Corporation. Prior to joining the
Corporation, Mr. Copperman was President and Chief Executive Officer of the
Informations Systems Group of JWP Inc., a computer reseller and services
company, from 1991 to 1993, and President and Chief Operating Officer of
Commodore Business Machines, Inc. from 1989 to 1991.
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ITEM 2. PROPERTIES
At the end of fiscal year 1996, the Corporation owned or leased approximately
28.2 million square feet of space worldwide. The Corporation occupied
approximately 21.2 million square feet, leased or sub-leased to others
approximately 2.4 million square feet, and due to restructuring actions, had
vacant space of approximately 4.6 million square feet, most of which is
available for sale or sub-lease. The total space owned or leased decreased by
approximately 4.7 million square feet from the prior year. Approximately 52% of
the occupied space is located in the United States; approximately 58% of the
occupied space is owned. The Corporation's occupied facilities are substantially
utilized, well maintained and suitable for the products and services offered by
the Corporation.
ITEM 3. LEGAL PROCEEDINGS
During the fourth quarter of fiscal 1994, the Corporation was named as a
defendant in several purported class action lawsuits filed in the U.S. District
Court for the Southern District of New York and the U.S. District Court for the
District of Massachusetts alleging violations of the Federal securities laws
arising from alleged misrepresentations and omissions in connection with the
Corporation's issuance and sale of Series A 8-7/8% Cumulative Preferred Stock
and the Corporation's financial results for the fiscal quarter ended April 2,
1994. The Massachusetts and New York lawsuits were all effectively consolidated
into three cases, which were pending before the United States District Court for
the District of Massachusetts. On August 8, 1995, the Massachusetts federal
court granted the defendants' motion to dismiss all three cases in their
entirety. On September 6, 1995, notices of appeal were filed in two of the
cases. On May 7, 1996, the United States Court of Appeals for the First Circuit
affirmed in part and reversed in part the dismissal of the two cases and
remanded for further proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
See the section entitled "Investor information -- Information on Common Stock,"
which is incorporated herein by reference, appearing on page 57 of the
Corporation's 1996 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
See the section entitled "Eleven-year financial summary," which is incorporated
herein by reference, appearing on pages 26 and 27 of the Corporation's 1996
Annual Report to Stockholders.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the section entitled "Management's discussion and analysis of financial
condition and results of operations," which is incorporated herein by reference,
appearing on pages 28 through 32 of the Corporation's 1996 Annual Report to
Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data, which are incorporated herein
by reference from the Corporation's 1996 Annual Report to Stockholders, are
indexed under Item 14(a)(1). See also the financial statement schedules
appearing herein, as indexed under Item 14(a)(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See the section entitled "Election of Directors," which is incorporated herein
by reference from the Corporation's Proxy Statement for its 1996 Annual Meeting
of Stockholders. See also the section entitled "Executive Officers of the
Corporation" appearing in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
See the section entitled "Executive Compensation," which is incorporated herein
by reference from the Corporation's Proxy Statement for its 1996 Annual Meeting
of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the sections entitled "Security Ownership of Directors and Executive
Officers" and "Security Ownership of Certain Beneficial Owners" which are
incorporated herein by reference from the Corporation's Proxy Statement for its
1996 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial statements which are incorporated herein by reference from the
Corporation's 1996 Annual Report to Stockholders:
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Report of Independent Accountants (page 33).
Consolidated Statements of Operations for fiscal years 1996, 1995 and 1994 (page
34).
Consolidated Balance Sheets as at June 29, 1996 and July 1, 1995 (page 35).
Consolidated Statements of Cash Flows for fiscal years 1996, 1995 and 1994 (page
36).
Consolidated Statements of Stockholders' Equity for fiscal years 1996, 1995 and
1994 (page 37).
Notes to Consolidated Financial Statements (pages 38 through 53).
Eleven-Year Financial Summary (pages 26 and 27).
Quarterly Financial Data (page 53).
The Corporation's 1996 Annual Report to Stockholders is not to be deemed filed
as part of this report except for those parts thereof specifically incorporated
herein by reference.
(2) Financial statement schedules:

All other schedules have been omitted since they are not required, not
applicable or the information has been included in the financial statements or
the notes thereto.
Individual financial statements of the Corporation's subsidiaries have been
omitted because it is primarily an operating company and the consolidated
subsidiaries are not indebted, in a material amount, to any person other than to
the parent or to other consolidated subsidiaries.

(3) Exhibits:
3(a) -- Restated Articles of Organization of the Corporation dated March 11, 1991 (filed
under cover of Form SE as Exhibit 3(a) to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 29, 1991 and incorporated herein by
reference).
(b) -- Articles of Amendment filed with the Secretary of State of the Commonwealth of
Massachusetts on November 4, 1993 (filed as Exhibit 4.3 to the Corporation's
Registration Statement on Form S-3, No. 33-51987 and incorporated herein by
reference).
(c) -- Certificate of Designation filed with the Secretary of State of the Commonwealth
of Massachusetts on March 21, 1994 (filed as

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Exhibit 4.1 to the Corporation's Report on Form 8-K filed on March 23, 1994 and
incorporated herein by reference).
(d) -- By-laws of the Corporation, as amended (filed as Exhibit 3(d) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended July 1, 1995 and
incorporated herein by reference).
4(a) -- Rights Agreement dated as of December 11, 1989 between the Corporation and First
Chicago Trust Company of New York, as Rights Agent (filed under cover of Form SE as
Exhibit 4.1 to the Corporation's Current Report on Form 8-K dated December 12,
1989 and incorporated herein by reference).
(b) -- Indenture dated as of September 15, 1992 between Citibank, N.A. as Trustee, and
the Corporation ("Indenture") (filed as Exhibit 4 to the Corporation's Registration
Statement on Form S-3, No. 33-51378 and incorporated herein by reference).
(c) -- Form of 7 1/8% Note Due 2002, issued under the Indenture (filed as Exhibit 4.2 to
the Corporation's Quarterly Report on Form 10-Q for the quarter ended December 26,
1992 and incorporated herein by reference).
(d) -- Form of 8 5/8% Debenture due November 1, 2012, issued under the Indenture (filed
as Exhibit 4.3 to the Corporation's Quarterly Report on Form 10-Q for the quarter
ended December 26, 1992 and incorporated herein by reference).
(e) -- Form of 7% Note Due 1997, issued under the Indenture (filed as Exhibit 4.4 to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended December 26, 1992
and incorporated herein by reference).
(f) -- Form of 7 3/4% Debenture due April 1, 2023, issued under the Indenture (filed as
Exhibit 4.2 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended
March 27, 1993 and incorporated herein by reference).
10(a) -- 1968 Employee Stock Purchase Plan (filed as Exhibit 99 to the Corporation's
Registration Statement on Form S-8, No. 33-56477 and incorporated herein by
reference).*
(b) -- 1981 International Employee Stock Purchase Plan (filed as Exhibit 10(b) to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995).*
(c) -- 1985 Restricted Stock Option Plan, as amended (filed under cover of Form SE as
Exhibit 10(d) to the Corporation's Annual Report on Form 10-K for the fiscal year
ended July 1, 1989 and incorporated herein by reference).*
(d) -- 1990 Equity Plan, as amended (filed as Exhibit 10(a) to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended December 30, 1995). *
(e) -- 1990 Stock Option Plan for Nonemployee Directors, as amended (filed as Exhibit
10(f) to the Corporation's Annual Report on

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Form 10-K for the fiscal year ended July 1, 1995 and incorporated herein by
reference).*
(f) -- Digital Equipment Corporation 1995 Equity Plan, as amended (filed as Exhibit
10(b) to the Corporation's Quarterly Report on Form 10-Q for the quarter ended
December 30, 1995 and incorporated herein by reference).*
(g) -- Deferred Compensation Plan for Non-Employee Directors as Amended and Restated
Effective 18 May 1987, as further amended on April 22, 1991 and as further amended
on June 17, 1996.*
(h) -- Deferred Compensation Plan for Executives.*
(i) -- Retirement Arrangement for Non-Employee Directors, as amended (filed as Exhibit
10(h) to the Corporation's Annual Report on Form 10-K for the fiscal year ended July
1, 1995 and incorporated herein by reference).*
(j) -- Form of Indemnification Agreement in effect between the Corporation and each of
its officers and directors (filed as Exhibit 10(g) to the Corporation's Annual
Report on Form 10-K for the fiscal year ended July 2, 1988 and incorporated
herein by reference).*
(k) -- Letter Agreement from the Corporation to Savino R. Ferrales dated as of May 18,
1995 (filed as Exhibit 10(l) to the Corporation's Annual Report on Form 10-K for the
fiscal year ended July 1, 1995 and incorporated herein by reference).*
(l) -- Digital Equipment Corporation 1995 Stock Option Plan for Nonemployee Directors
(filed as Exhibit 10(a) to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 30, 1995 and incorporated herein by reference).*
(m) -- Digital Equipment Corporation SAVE Restoration Plan (as established effective as
of July 1, 1995) (filed as Exhibit 10(b) to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by
reference).*
(n) -- Agreement between the Corporation and Enrico Pesatori dated as of August 28,
1996.*
11 -- Computation of net income/(loss) per common share and common share equivalent.
13 -- The Corporation's 1996 Annual Report to Stockholders, certain portions of which
have been incorporated herein by reference.
21 -- List of Subsidiaries.
23 -- Consent of independent accountants.
27 -- Financial Data Schedule.
- ---------------
*Indicates management contract or compensatory plan or arrangement.

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(b) Reports on Form 8-K:
None.
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14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DIGITAL EQUIPMENT CORPORATION
(Registrant)
By /s/ ROBERT B. PALMER
------------------------------------
ROBERT B. PALMER
Chairman of the Board,
President and Chief Executive
Officer
Date: September 16, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

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REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Digital Equipment
Corporation has been incorporated by reference in this Form 10-K from page 33 of
the 1996 Annual Report to Stockholders of Digital Equipment Corporation. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 10 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
-------------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 29, 1996
S-1
17
SCHEDULE II
DIGITAL EQUIPMENT CORPORATION

S-2
EX-10.(G)
2
DEFERRED COMPENSATION PLAN FOR NON-EMP DIRECTORS
1
EXHIBIT 10(g)
DIGITAL EQUIPMENT CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
AS AMENDED AND RESTATED EFFECTIVE 18 MAY 1987
AND AS FURTHER AMENDED APRIL 22, 1991 AND JUNE 20, 1996
I. NAME AND PURPOSE
The name of this plan is the Digital Equipment Corporation Deferred Compensation
Plan for Non-Employee Directors (the "Plan"). Its purpose is to provide
non-employee directors of Digital Equipment Corporation (the "Corporation") with
an opportunity to defer cash compensation earned as a director.
II. EFFECTIVE DATE
The Plan became effective on June 1, 1983.
III. ELIGIBILITY FOR PARTICIPATION
Any director of the Corporation who is not an employee of the Corporation or of
a subsidiary of the Corporation shall be eligible to participate in the Plan.
Any such person who submits an election to defer compensation under the Plan as
provided for in V. below is hereinafter called a "Participant." The Plan shall
establish for each Participant an unfunded deferred compensation account or
accounts as appropriate.
IV. PARTICIPANTS' DEFERRED COMPENSATION ACCOUNTS
There shall be four types of deferred compensation accounts under this Plan as
follows:
A. Cash Deferred Compensation Account with Lump Sum Payment ("Cash Lump Sum
Account"),
B. Cash Deferred Compensation Account with Installment Payment ("Cash
Installment Account"),
C. Unit Deferred Compensation Account with Lump Sum Payment ("Unit Lump Sum
Account"), and
D. Unit Deferred Compensation Account with Installment Payment ("Unit
Installment Account").
Each Participant may have Cash Lump Sum Accounts or Cash Installment Accounts or
both ("Cash Accounts"). A Participant may also have Unit Lump Sum Accounts or
Unit Installment Accounts or both ("Unit Accounts"). Cash Accounts shall have
all allocations credited in dollar amounts and shall be credited with interest
as provided below. Unit Accounts shall have all allocations credited in units as
provided below. Cash Lump Sum Accounts and Unit Lump Sum Accounts (collectively
"Lump Sum Accounts") shall be distributed in a lump sum payment. Cash
Installment Accounts and Unit Installment Accounts (collectively "Installment
Accounts") shall be distributed in a series of installment payments as elected
by the Participant.
V. ELECTIONS OF DEFERRAL, ALLOCATION AND DISTRIBUTION
Eligible directors or nominees to be eligible directors of the Corporation may
make the following elections:
A. On or before December 31 of any year, an initial election (i) to defer
receipt of all or a specified portion of the compensation (exclusive of expense
reimbursement) otherwise payable during the following calendar year for service
on the Board of Directors of the Corporation and its Committees and for
attending meetings of said Board, which election shall be irrevocable, (ii) to
allocate the deferred compensation among types of accounts, which election shall
be irrevocable and (iii) to elect the number of installment payments desired, if
applicable, which election may be changed as provided in Section V.D below.
B. Before July 1, 1987, an irrevocable election (i) to defer receipt of all or a
portion of his or her compensation otherwise payable during the six-month period
commencing July 1, 1987 and ending December
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31, 1987, (ii) to allocate the deferred compensation among types of accounts,
and (iii) to elect the number of installment payments desired, if applicable.
C. If such director or nominee is a newly-elected director, an election (i) to
defer receipt of all or a portion of his or her compensation otherwise payable
during the remainder of the calendar year in which such director joins the
Board, which election shall be irrevocable, (ii) to allocate the deferred
compensation among types of accounts, which election shall be irrevocable and
(iii) to elect the number of installment payments desired, if applicable, which
election may be changed as provided in Section V.D below. Any such elections
must be made within one month following the date on which such director is
elected to the Board and shall be effective with respect to compensation
allocable to the period commencing on the first day of the month next following
the date on which such election is made.
D. At any time after the initial elections referred to in Sections V.A. and V.C.
above, a Participant may change his or her election with respect to number of
installment payments desired, if applicable; provided, however, no such election
shall be effective unless it is made more than six months prior to the
Participant's resignation or reasonably anticipated retirement from the Board of
Directors.
VI. MANNER OF ELECTING DEFERRALS, ALLOCATIONS AND DISTRIBUTIONS
The elections provided for in V. above must be made on a form provided by the
Plan Administrator, which specifies:
A. The amount of each component of the Participant's compensation for such year
(annual retainer, committee fees and attendance fees) to be deferred (designated
either as a percentage, a dollar amount or a combination thereof); and
B. The percentage of the deferred compensation to be allocated to each of the
Participant's deferred compensation accounts; and
C. The number of annual installments (not to exceed 15) to be used in
distributions from the Participant's Installment Accounts, if any; and
D. The period of deferral (a minimum of three years or until retirement or
resignation from the Board of Directors, whichever is less) (the "Deferral
Period").
Such form shall be delivered to the Corporation on or before December 31 of the
year preceding the first year to which such election relates, except that the
form from newly elected directors with respect to their initial election for a
partial year may be delivered at any time within one month following the date of
their election to the Board. Any form received prior to May 18, 1987 shall
continue in effect until a new form is delivered in accordance with this Section
VI. The elections set forth in the latest form filed as to the percentage of
each component of the Participant's compensation for the year (or other period)
to be deferred, as to the amounts to be allocated to the deferred compensation
accounts and as to the number of installments, if applicable, shall be given
continuing effect for subsequent years until a new notice specifying a different
election shall be delivered to the Corporation. Any election for deferral
received prior to May 18, 1987 shall be deemed to be an election to allocate all
of such deferred compensation to the Participant's Cash Accounts until a new
notice specifying a different election shall be delivered to the Corporation.
Any new form shall apply only to compensation for periods subsequent to the
period in which such new form is delivered; however, the number of installment
payments desired, if applicable, may be changed at any time, subject to the
limitations in Section V.D.
VII. CREDITING PARTICIPANTS' ACCOUNTS
The following method shall be used to credit a Participant's accounts:
A. All Participants' deferred compensation accounts under the Plan prior to
amendment were and will remain Cash Accounts and were or will be credited with
deferred compensation which otherwise would have been payable before July 1,
1987 and with interest equivalents as of each June 30 and December 31 on the
average daily balance credited to any such account during the period of six
months ended on such date, at an
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annualized rate equal to the rate, on a bond-yield equivalency basis, on
six-month (26-week) Treasury Bills maturing during the week in which such date
falls.
B. Effective with respect to the six-month period ending December 31, 1987, and
for subsequent calendar years through December 31, 1996, a Participant's Cash
Accounts shall be credited with the cash value of any amounts deferred by him or
her subject to an election to have such amounts allocated to Cash Accounts. Any
such Cash Account shall also be credited with interest equivalents as of each
June 30 and December 31 on the average daily balance credited to such account
during the period of six months ended on such date, at an annualized rate equal
to the rate, on a bond yield equivalency basis, on six-month (26-week) Treasury
Bills maturing during the week in which such date falls. Interest equivalents
shall continue to be so credited until such time as the entire balance of any
such account shall have been distributed.
C. Effective January 1, 1997, and for subsequent calendar years, a Participant's
Cash Accounts shall be credited with the cash value of any amounts deferred by
him or her subject to an election to have such amounts allocated to Cash
Accounts. Any such Cash Account shall also be credited with interest equivalents
on a quarterly basis on the average daily balance credited to such account
during such period ended on such date, at an interest rate equal to the ten-year
U.S. Government Rate as reported in the Wall Street Journal, reported as an
average for the one-year period prior to December 1 of the year prior to the
first year of the Deferral Period, which rate shall be reset in the same manner
on January 1 of each subsequent year during the Deferral Period. Interest
equivalents shall continue to be so credited until such time as the entire
balance of any such account shall have been distributed.
D. Effective with respect to the six-month period ending December 31, 1987, and
for subsequent calendar years through December 31, 1996, a Participant's Unit
Accounts shall be credited with a number of units ("Units"), to be determined
and valued in accordance with the fair market value of shares of the
Corporation's Common Stock, $1.00 par value ("Common Stock"). The number of
Units shall be adjusted as provided in 2. and 3. below until the entire balances
in Unit Accounts shall have been distributed. The method of such determination
and valuation is as follows:
1. The number of Units credited to any Unit Account (including fractional
Units) shall be the quotient of (i) the cash amount of deferred compensation to
be credited to such account over (ii) the mean between the highest and lowest
selling prices of the Common Stock on the date on which the deferred
compensation would have otherwise been payable, as reported on the New York
Stock Exchange Composite Tape. If there are no sales on such date, the fair
market value of the Common Stock shall be an average of the mean between the
highest and lowest selling prices of the Common Stock on the nearest day before
and the nearest day after such date, as reported on the New York Stock Exchange
Composite Tape.
2. Additional Units shall be credited to a Participant's Unit Accounts as of
each payment date for cash dividends, if any, on the Common Stock, on the basis
of the number of Units credited to each account on the record date for such
dividends. The number of Units (including fractional Units) to be credited to
each such account as of any cash dividend payment date shall be the quotient of
(i) the product of the number of Units credited to such account on the dividend
record date for such dividend and the dividend per share on the Common Stock
over (ii) the fair market value of the Common Stock on the dividend payment
date. The fair market value of the Common Stock on the dividend payment date
shall be the mean between the highest and lowest selling prices of the Common
Stock on the dividend payment date, as reported on the New York Stock Exchange
Composite Tape. If there are no sales on the dividend payment date, the fair
market value of the Common Stock shall be an average of the mean between the
highest and lowest selling prices of the Common Stock on the nearest day before
and the nearest day after the dividend payment date, as reported on the New York
Stock Exchange Composite Tape.
3. If at any time the number of outstanding shares of Common Stock shall be
increased or decreased as the result of any stock dividend, subdivision, stock
split, combination or reclassification of shares, the number of Units in a
Participant's Unit Accounts shall be increased or decreased, as the case may be,
in the same proportion as the outstanding number of shares of Common Stock is
increased or decreased.
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E. Effective January 1, 1997, and for subsequent calendar years, a
Participant's Unit Accounts shall be credited with a number of units ("Units"),
to be determined and valued in accordance with the fair market value of shares
of the Corporation's Common Stock, $1.0 0 par value ("Common Stock"). The number
of Units shall be adjusted as provided in 2. and 3. below until the entire
balances in Unit Accounts shall have been distributed. The method of such
determination and valuation is as follows:
1. The number of Units credit to any Unit Accounting (including fractional
Units) shall be the quotient of (i) the cash amount of deferred compensation to
be credited to such account over (ii) the mean between the highest and lowest
selling prices of the Common Stock on the ten trading days prior to the date on
which the deferred compensation would have otherwise been payable, as reported
on the New York Stock Exchange Composite Tape.
2. Additional Units shall be credited to a Participant's Unit Accounts as of
each payment date for cash dividends, if any, on the Common Stock, on the basis
of the number of Units credited to each Unit Account on the record date for any
such dividend. the number of Units (including fractional Units) to be credited
to each such account as of any cash dividend payment date shall be the quotient
of (i) the product of the number of Units credited to such account on the
dividend record date for such dividend and the dividend per share on the Common
Stock over (ii) the fair market value of the Common Stock on the dividend
payment date. The fair market value of the Common Stock on the dividend payment
date shall be the mean between the highest and lowest selling prices of the
Common on the dividend payment date, as reported on the New York Stock Exchange
Composite Tape. If there are no sales on the dividend payment date, the fair
market value of the Common Stock on the nearest day after the dividend payment
date, as reported on the New York Stock Exchange Composite Tape.
3. If at any time the number of outstanding shares of Common Stock shall be
increased or decreased as the result of any stock dividend, subdivision, stock
split, combination or reclassification of shares, the number of Units in a
Participant's Unit Accounts shall be increased or decreased, as the case may be,
in the same proportion as the outstanding number of shares of Common Stock is
increased or decreased.
VIII. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
Distributions of the amounts in a Participant's deferred compensation accounts
shall be made as follows:
A. No distribution of deferred compensation may be made except as provided in
this Section VIII.
B. The amounts credited to a Participant's Lump Sum Accounts shall be payable
in cash in a lump sum in January of the year following the last year of the
Deferral Period. The amounts credited to a Participant's Installment Accounts
shall be paid in up to fifteen annual installments according to the
Participant's election or elections commencing in January of the year following
the last year of the Deferral Period. The amount of the first payment shall be a
fraction of the amount of the Participant's deferred compensation accounts as of
December 31 of the year preceding payment, the numerator of which is one and the
denominator of which is the total number of installments elected. The amount of
each subsequent payment shall be a fraction of the amount as of December 31 of
the year preceding such subsequent payment, the numerator of which is one and
the denominator of which is the total number of installments elected minus the
number of installments previously paid.
C. Each amount shall be debited for the amount of any distribution made from
it, either in a lump sum or in annual installments.
D. Distribution of a Participant's Cash and Unit Accounts shall be made in
cash. With respect to any Unit Account, the cash amount for any payment from
such account shall be determined by multiplying the number of Units in the
Account on December 31 of the year immediately preceding the payment date by the
average of the mean between the highest and lowest selling prices of the Common
Stock, as reported on the New York Stock Exchange Composite Tape, for each of
the ten (10) trading days immediately prior to said December 31. The amount to
be distributed in January of any year shall be determined as of December 31 of
the immediately preceding year.
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IX. DISTRIBUTION UPON DEATH
If any Participant dies while a director, or thereafter, before receiving all
funds deferred for his or her accounts, the unpaid amount in the Participant's
deferred compensation accounts shall be paid in one lump sum in January of the
year following the year of death to any beneficiary or beneficiaries designated
by the Participant by written notice to the Corporation or, in the absence of
such designation, to such Participant's estate.
X. PARTICIPANT'S RIGHTS IN ACCOUNTS
A Participant shall have only the interest of an unsecured general creditor in
the deferred compensation, interest equivalents or Units credited to his or her
accounts. All amounts deferred under the Plan shall remain the sole property of
the Corporation, subject to the claims of its general creditors and available
for its use for whatever purposes are desired until actually paid. With respect
to amounts deferred, the obligation of the Corporation hereunder is purely
contractual and shall not be funded or secured in any way.
XI. NON-ASSIGNABILITY
The right of a Participant to the payment of deferred compensation as provided
in the Plan shall not be assigned, transferred, pledged or encumbered or be
subject in any manner to alienation or anticipation.
XII. STATEMENT OF ACCOUNT
Statements will be sent to Participants during February of each year as to the
balance of their deferred compensation accounts as of the end of the previous
calendar year.
XIII. ADMINISTRATION
The Administrator of this Plan shall be the Office of the President of the
Corporation. The Administrator shall have authority to adopt rules and
regulations for carrying out the Plan and to interpret, construe and implement
the provisions hereof.
XIV. AMENDMENT AND TERMINATION
The Plan may at any time be amended, modified or terminated by the Board of
Directors of the Corporation. No amendment, modification or termination shall,
without the consent of a Participant, adversely affect such Participant's right
with respect to amounts accrued in his or her deferred compensation accounts.
XV. NOTICES
All notices and elections to be delivered to the Corporation hereunder shall be
delivered to the attention of the Secretary of the Corporation.
XVI. EARLY WITHDRAWAL PENALTY; HARDSHIP
A. Early Withdrawal. A Participant may, upon prior written notice to the
Corporation, accelerate the distribution of all or any part of the amounts
deferred, including any accrued interest, subject to an early withdrawal penalty
equal to 10% of the amount withdrawn and provided such amounts have been
deferred for at least three years. This penalty shall be withheld by the
Corporation upon the distribution of any amounts pursuant to this Section XVI.A.
B. Hardship. Upon receipt of a request from a Participant or a Participant's
designated beneficiary, delivered in writing to the Corporation, the
Compensation and Management Development Committee (the "CMDC") of the Board of
Directors may cause the Corporation to accelerate payment of all or any part of
the Participant's deferred compensation including any accrued interest, if it
finds in its sole discretion that payment of such amounts in accordance with
Participant's prior election under Section V would result in hardship to the
Participant or beneficiary and such hardship is the result of an unforeseeable
emergency caused by circumstances beyond the control of the Participant or
beneficiary. Acceleration of payment may not be made under this Section XVI to
the extent that such hardship is or may be relieved (i) through
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reimbursement or compensation by insurance or otherwise or (ii) by liquidation
of the Participant's assets, to the extent the liquidation of assets would not
itself cause severe financial hardship.
XVII. CHANGE IN CONTROL
A. Initial Lump Sum Election. Notwithstanding any election made pursuant to
Section V, a Participant may file a written election with the Corporation to
have the deferred amounts, including accrued interest, paid in one lump-sum
payment as soon as practicable following a Change in Control, but in no event
later than 90 days after such Change in Control.
B. Revocation of Lump-Sum Election. A Participant may revoke an election made
pursuant to Section XVII (a) by filing an appropriate written notice with the
Corporation. A revocation notice filed pursuant to this Section XVII (b) shall
be effective with respect to deferred amounts, including accrued interest, which
are credited thereafter to the Participant's Account.
C. Limitation on Elections. Any election made pursuant to Section XVII (A) or
(B) shall not be effective unless filed with the Corporation at least 90 days
prior to a Change in Control.
D. Definition of Change in Control. A "Change in Control" is defined to mean
any of the following events:
1. The acquisition by any person (including a group, within the meaning of
Sections 13(d)(3) or 14(d)(2) of the 1934 Act), other than the Corporation or
any subsidiary of the Corporation, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of the combined
voting power of the Corporation's outstanding voting securities.
2. The first purchase under a tender offer or exchange offer, other than an
offer by the Corporation or any subsidiary of the Corporation, pursuant to which
shares of the Corporation's Common Stock have been purchased.
3. During any period of two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Corporation cease for
any reason (other than death or disability) to constitute at least a majority
thereof, unless the election or the nomination for election by stockholders of
the Corporation of each new Director was approved by a vote of at least
two-thirds of the Directors then still in office who were Directors at the
beginning of the period.
4. Approval by stockholders of the Corporation of a merger, consolidation,
liquidation or dissolution of the Corporation, or the sale of all or
substantially all of the assets of the Corporation.
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EX-10.(H)
3
DEFERRED COMPENSATION FOR EXECUTIVES
1
EXHIBIT 10(h)
DIGITAL EQUIPMENT CORPORATION
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
I. NAME AND PURPOSE
The name of this plan is the Digital Equipment Corporation Deferred Compensation
Plan for Executives (the "Plan"). Its purpose is to provide a select group of
management or highly compensated employees ("Executives") within the meaning of
Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income
Security Act of 1974, as amended, of Digital Equipment Corporation or its
subsidiaries (the "Corporation") with an opportunity to defer cash compensation
earned through the Corporation's Executive Incentive Plan and its successors
("Eligible Compensation").
II. EFFECTIVE DATE
The Plan was approved by the Board of Directors on June 20, 1996 and first
became effective with respect to Eligible Compensation paid for services
rendered in fiscal year 1997.
III. ELIGIBILITY FOR PARTICIPATION
Any Executive of the Corporation designated by the Compensation and Management
Development Committee or its successor (the "CMDC") of the Board of Directors
shall be eligible to participate in the Plan. The CMDC may delegate its
authority to designate Participants under this Plan to any officer or officer(s)
of the Corporation and subject to whatever limitations the CMDC may define in
its sole discretion. Any such person who submits an election to defer Eligible
Compensation under the Plan as provided for in Section V below is hereinafter
called a "Participant." The Plan shall establish for each Participant an
unfunded deferred compensation account or accounts as appropriate. Any authority
or power granted in the Plan to the CMDC shall also be deemed to be granted to
the Board of Directors, and any action permitted to be taken or determination
permitted to be made by the CMDC may also be taken or made by the Board of
Directors.
IV. PARTICIPANTS' DEFERRED COMPENSATION ACCOUNTS
There shall be four types of deferred compensation accounts under this Plan as
follows:
A. Cash Deferred Compensation Account with Lump Sum Payment ("Cash Lump Sum
Account"),
B. Cash Deferred Compensation Account with Installment Payment ("Cash
Installment Account"),
C. Unit Deferred Compensation Account with Lump Sum Payment ("Unit Lump Sum
Account"), and
D. Unit Deferred Compensation Account with Installment Payment ("Unit
Installment Account").
Each Participant may have Cash Lump Sum Accounts or Cash Installment Accounts or
both ("Cash Accounts"). A Participant may also have Unit Lump Sum Accounts or
Unit Installment Accounts or both ("Unit Accounts"). Cash Accounts shall have
all allocations credited in dollar amounts and shall be credited with interest
as provided below. Unit Accounts shall have all allocations credited in units as
provided below. Cash Lump Sum Accounts and Unit Lump Sum Accounts (collectively
"Lump Sum Accounts") shall be distributed in a lump sum payment. Cash
Installment Accounts and Unit Installment Accounts (collectively "Installment
Accounts") shall be distributed in a series of installment payments as elected
by the Participant.
V. ELECTIONS OF DEFERRAL, ALLOCATION AND DISTRIBUTION
Executives may make the following elections:
A. On or before December 31 of any year, an initial election (i) to defer
receipt of all or a specified portion of the Eligible Compensation otherwise
payable during the following calendar year, which election shall be irrevocable,
(ii) to allocate the deferred compensation among types of accounts, which
election shall be
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irrevocable, and (iii) to elect the number of installment payments desired, if
applicable, which election may be changed as provided in Section V.C. below.
B. If such individual has become employed by the Corporation after December 31
of any year, an initial election (i) to defer receipt of all or a portion of his
or her Eligible Compensation, which election shall be irrevocable, (ii) to
allocate the deferred compensation among types of accounts, which election shall
be irrevocable, and (iii) to elect the number of installment payments desired,
if applicable, which election may be changed as provided in Section V.C below.
Any such elections must be made within one month following the date on which
such Executive becomes employed by the Corporation and shall be effective with
respect to compensation allocable to the period commencing on the first day of
the month next following the date on which such election is made.
C. At any time after the initial election referred to in Sections V.A and V.B
above, a Participant may change his or her election with respect to the number
of installment payments desired by delivering to the Corporation written notice
of such change; provided, however, no such subsequent election shall be
effective unless such notice is delivered to the Corporation more than six
months prior to a Participant's (i) reasonably anticipated retirement from the
Corporation or (ii) termination of employment.
VI. MANNER OF ELECTING DEFERRALS, ALLOCATIONS AND DISTRIBUTIONS
The elections provided for in Section V above must be made on a form provided by
the Plan Administrator, which specifies:
A. The amount of the Participant's Eligible Compensation for such year to be
deferred (designated either as a percentage, a dollar amount or a combination
thereof);
B. The percentage of the deferred compensation to be allocated to each of the
Participant's deferred compensation accounts;
C. The number of annual installments (not to exceed 15) to be used in
distributions from the Participant's Installment Accounts, if any; and
D. The period of deferral (a minimum of three years from the year in which the
Eligible Compensation is credited to a Participant's account(s), subject to
Section IX below) (the "Deferral Period").
Such form shall be delivered to the Corporation on or before December 31 of the
year preceding the first year to which such election relates, and the form from
newly hired Eligible Employees with respect to their initial election for a
partial year may be delivered at any time within one month following the date of
the commencement of their employment. The elections set forth in the latest form
filed as to the amount of the Participant's Eligible Compensation for the year
(or other period) to be deferred, as to the allocations among deferred
compensation accounts and as to the number of installments, if applicable, shall
be given continuing effect for subsequent years until a new notice specifying a
different election shall be delivered to the Corporation. Any new form shall
apply only to the decision to defer compensation for periods subsequent to the
period in which such new form is delivered; however, the number of installment
payments desired, if applicable, may be changed at any time, subject to the
limitation in Section V.C.
VII. CREDITING PARTICIPANTS' ACCOUNTS
The following method shall be used to credit a Participant's accounts:
A. A Participant's Cash Accounts shall be credited with the cash value of any
amounts deferred by him or her subject to an election to have such amounts
allocated to Cash Accounts. Any such Cash Account shall also be credited with
interest equivalents on a quarterly basis on the average daily balance credited
to such account during such period ended on such date, at an interest rate equal
to the ten-year U.S. Government Rate as reported in the Wall Street Journal,
reported as an average for the one-year period prior to December 1 of the year
prior to the first year of the Deferral Period, which rate shall be reset in the
same manner on January 1 of each subsequent year during the Deferral Period.
Interest equivalents shall continue to be so credited until such time as the
entire balance of any such account shall have been distributed.
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B. A Participant's Unit Accounts shall be credited with a number of units
("Units"), to be determined and valued in accordance with the fair market value
of shares of the Corporation's Common Stock, $1.00 par value ("Common Stock").
The number of Units shall be adjusted as provided in 2. and 3. below until the
entire balances in Unit Accounts shall have been distributed. The method of such
determination and valuation is as follows:
1. The number of Units credited to any Unit Account (including fractional
Units) shall be the quotient of (i) the cash amount of deferred compensation to
be credited to such account over (ii) the mean between the highest and lowest
selling prices of the Common Stock on the ten trading days prior to the date on
which the deferred compensation would have otherwise been payable, as reported
on the New York Stock Exchange Composite Tape.
2. Additional Units shall be credited to a Participant's Unit Accounts as of
each payment date for cash dividends, if any, on the Common Stock, on the basis
of the number of Units credited to each Unit Account on the record date for any
such dividend. The number of Units (including fractional Units) to be credited
to each such account as of any cash dividend payment date shall be the quotient
of (i) the product of the number of Units credited to such account on the
dividend record date for such dividend and the dividend per share on the Common
Stock over (ii) the fair market value of the Common Stock on the dividend
payment date. The fair market value of the Common Stock on the dividend payment
date shall be the mean between the highest and lowest selling prices of the
Common Stock on the dividend payment date, as reported on the New York Stock
Exchange Composite Tape. If there are no sales on the dividend payment date, the
fair market value of the Common Stock shall be an average of the mean between
the highest and lowest selling prices of the Common Stock on the nearest day
before and the nearest day after the dividend payment date, as reported on the
New York Stock Exchange Composite Tape.
3. If at any time the number of outstanding shares of Common Stock shall be
increased or decreased as the result of any stock dividend, subdivision, stock
split, combination or reclassification of shares, the number of Units in a
Participant's Unit Accounts shall be increased or decreased, as the case may be,
in the same proportion as the outstanding number of shares of Common Stock is
increased or decreased.
4. When Eligible Compensation is paid in currency other than U.S. dollars, the
number of Units to be deferred shall be determined by converting the Eligible
Compensation into U.S. dollars at the same exchange rate at which such
Compensation was converted into the applicable foreign currency at the time the
Compensation was paid and then calculating the number of Units in accordance
with Section VII B.
VIII. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION
Subject to Section IX hereof, distributions of the amounts in a Participant's
deferred compensation accounts shall be made as follows:
A. No distribution of deferred compensation may be made except as provided in
this Section VIII.
B. The amounts credited to a Participant's Lump Sum Accounts shall be payable
in cash in a lump sum in January of the year following the last year of the
Deferral Period. The amounts credited to a Participant's Installment Accounts
shall be paid in up to fifteen annual installments according to the
Participant's election or elections commencing in January of the year following
the last year of the Deferral Period. The amount of the first payment shall be a
fraction of the amount of the Participant's deferred compensation accounts as of
December 31 of the year preceding payment, the numerator of which is one and the
denominator of which is the total number of installments elected. The amount of
each subsequent payment shall be a fraction of the amount as of December 31 of
the year preceding such subsequent payment, the numerator of which is one and
the denominator of which is the total number of installments elected minus the
number of installments previously paid.
C. Each account shall be debited for the amount of any distribution made from
it, either in a lump sum or in annual installments.
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D. Distribution of a Participant's Cash and Unit Accounts shall be made in
cash. With respect to any Unit Account, the cash amount for any payment from
such account shall be determined by multiplying the number of Units in the
Account on December 31 of the year immediately preceding the payment date by the
average of the mean between the highest and lowest selling prices of the Common
Stock, as reported on the New York Stock Exchange Composite Tape, for each of
the ten (10) trading days immediately prior to said December 31. The amount to
be distributed in January of any year shall be determined as of December 31 of
the immediately preceding year.
E. At the time of distribution, the amount of cash payable from a Unit Account
will be determined in U.S. dollars in accordance with Section VIII.D, and then
converted into the applicable foreign currency at the average exchange rate for
the ten business days prior to December 31 of the year prior to the year of any
distribution.
IX. DISTRIBUTION UPON DEATH, RETIREMENT OR TERMINATION OF EMPLOYMENT
A. Death.
If any Participant dies while an employee and, before distribution of all
amounts remaining in his or her deferred compensation accounts, the
undistributed balance remaining in the Participant's deferred compensation
accounts shall be calculated and paid in one lump sum in January of the year
following the year of death to the beneficiary or beneficiaries designated by
the Participant by written notice to the Corporation or, in the absence of such
designation, to such Participant's estate.
B. Retirement.
If a Participant ceases to be employed by the Corporation or any subsidiary of
the Corporation by reason of his or her retirement at or after age 55 before
distribution of all amounts remaining in his or her deferred compensation
accounts, the unpaid amount in the Participant's deferred compensation accounts
shall either continue to be paid as designated by the Participant in accordance
with Sections V and VI, or, if no payments have been made as of the retirement
date, shall commence in January of the year following the year of retirement, in
the manner designated by the Participant.
C. Termination of Employment.
If a Participant ceases to be employed by the Corporation or any subsidiary of
the Corporation for any other reason than death or retirement and before
distribution of all amounts remaining in his or her deferred compensation
accounts, the unpaid amount in the Participant's deferred compensation accounts
shall be calculated and paid in one lump sum in January of the year following
the year in which employment was terminated.
X. PARTICIPANT'S RIGHTS IN ACCOUNTS
A Participant shall have only the interest of an unsecured general creditor in
the deferred compensation, interest equivalents or Units credited to his or her
accounts. All amounts deferred under the Plan shall remain the sole property of
the Corporation, subject to the claims of its general creditors and available
for its use for whatever purposes are desired until actually paid. With respect
to amounts deferred, the obligation of the Corporation hereunder is purely
contractual and shall not be funded or secured in any way.
XI. NON-ASSIGNABILITY
The right of a Participant to the payment of deferred compensation as provided
in the Plan shall not be assigned, transferred, pledged or encumbered or be
subject in any manner to alienation or anticipation.
XII. STATEMENT OF ACCOUNT
Statements will be sent to Participants during February of each year as to the
balance of their deferred compensation accounts as of the end of the previous
calendar year.
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XIII. ADMINISTRATION
The Administrator of the Plan shall be the CMDC or its designee. The CMDC shall
have the authority to adopt rules and regulations for carrying out the Plan and
to interpret, construe and implement the provisions thereof. Appropriate income
tax withholding will be applied by the Corporation.
XIV. AMENDMENT AND TERMINATION
The Plan may at any time be amended, modified or terminated by the Board of
Directors of the Corporation or the CMDC thereof. No amendment, modification or
termination shall, without the consent of a Participant, will reduce any
Participant's deferred compensation account balances as of the effective date of
such amendment or termination.
XV. NOTICES
All notices and elections to be delivered to the Corporation hereunder shall be
delivered to the attention of the Corporate Executive Compensation Manager.
XVI. EARLY WITHDRAWAL PENALTY AND HARDSHIP
A. Early Withdrawal. A Participant may, upon prior written notice to the
Corporation, accelerate payment of all or any part of the amounts deferred,
including any accrued interest, subject to an early withdrawal penalty equal to
10% of the amount withdrawn, provided such compensation has been deferred for at
least three years. This penalty shall be withheld by the Corporation upon
distribution of any amounts pursuant to this Section XVI.A. A Participant who
elects to withdraw deferred amounts in advance of the scheduled distribution
thereof will not be able to elect further deferrals of compensation for a period
of 12 months from the date of early withdrawal.
B. Hardship. Upon receipt of a request from a Participant or a Participant's
designated beneficiary, delivered in writing to the Corporation, the CMDC or its
designee may cause the Corporation to accelerate payment of all or any part of
the Participant's deferred compensation including any accrued interest, if it
finds in its sole discretion that payment of such amounts in accordance with
Participant's prior election under Section V would result in hardship to the
Participant or beneficiary and such hardship is the result of an unforeseeable
emergency caused by circumstances beyond the control of the Participant or
beneficiary. Acceleration of payment may not be made under this Section XVI to
the extent that such hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the Participant's
assets, to the extent the liquidation of assets would not itself cause severe
financial hardship or (iii) by cessation of deferrals under this Plan of any
tax-qualified savings plan of the Corporation.
XVII. CHANGE IN CONTROL
A. Initial Lump Sum Election. Notwithstanding any election made pursuant to
Section V, a Participant may file a written election with the Corporation to
have the deferred amounts, including accrued interest, paid in one lump-sum
payment as soon as practicable following a Change in Control, but in no event
later than 90 days after such Change in Control.
B. Revocation of Lump-Sum Election. A Participant may revoke an election made
pursuant to Section XVII (a) by filing an appropriate written notice with the
Corporation. A revocation notice filed pursuant to this Section XVII (b) shall
be effective with respect to deferred amounts, including accrued interest, which
are credited thereafter to the Participant's Account.
C. Limitation on Elections. Any election made pursuant to Section XVII (A) or
(B) shall not be effective unless filed with the Corporation at least 90 days
prior to a Change in Control.
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D. Definition of Change in Control. A "Change in Control" is defined to mean
any of the following events:
1. The acquisition by any person (including a group, within the meaning of
Sections 13(d)(3) or 14(d)(2) of the 1934 Act), other than the Corporation or
any subsidiary of the Corporation, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of the combined
voting power of the Corporation's outstanding voting securities.
2. The first purchase under a tender offer or exchange offer, other than an
offer by the Corporation or any subsidiary of the Corporation, pursuant to which
shares of the Corporation's Common Stock have been purchased.
3. During any period of two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Corporation cease for
any reason (other than death or disability) to constitute at least a majority
thereof, unless the election or the nomination for election by stockholders of
the Corporation of each new Director was approved by a vote of at least
two-thirds of the Directors then still in office who were Directors at the
beginning of the period.
4. Approval by stockholders of the Corporation of a merger, consolidation,
liquidation or dissolution of the Corporation, or the sale of all or
substantially all of the assets of the Corporation.
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EX-10.(N)
4
AGREEMENT BETWEEN CORPORATION AND E. PESATORI
1
EXHIBIT 10(n)
AGREEMENT
This agreement (the "Agreement") is entered into between Digital Equipment
Corporation, on its own behalf and on behalf of its officers, agents, directors,
employees, subsidiaries, affiliates, assigns and successors (collectively,
"Digital") and Enrico Pesatori (on your own behalf and on behalf of your heirs,
executors, administrators, and assigns) regarding the termination of your
employment with Digital.
In consideration of the mutual covenants and undertakings set forth herein, you
and Digital hereby agree as follows:
1. Your employment with Digital will end July 5, 1996 (the "Effective Date").
2. You will continue to provide services satisfactory to Digital in your
current capacity until your Effective Date.
3. You will notify Digital within one week of accepting new employment of the
name and address thereof, provided that the beginning date of such employment is
within 24 months from the Effective Date.
4. You will not disclose or use any of Digital's confidential information or
confidential information entrusted to Digital by others to any non-Digital
person, corporation, or other entity. Digital's confidential information
includes matters not generally known outside of Digital, such as
experimentation, research and developments relating to existing and future
products and services marketed or used by Digital, and also any information
relating to the general business operations of Digital (i.e., sales, costs,
profits, organizations, customer lists, pricing methods, etc.).
5. For a period of two years following the Effective Date, you will not
directly or indirectly solicit for employment (either with yourself or with the
entity with which you are associated at the time or any of such entity's
affiliates) or hire (whether as an employee, consultant, or otherwise) any
executive or other employee of Digital; provided, however, that in no event
shall the provisions of this paragraph 5 be deemed to impose any obligation on
yourself with respect to any solicitation or hiring where you neither have any
control over, nor participate in, such action. Without limiting the generality
of the foregoing, if you request or consent (whether in writing or otherwise)
that a third party (such as an employee of a recruiting firm) take any action
which, if taken by yourself, would be a violation of the foregoing provisions of
this paragraph 5, you shall be deemed to "participate in" such action.
6. Except for payment of the Promissory Note described in paragraph 8, below,
you will settle all expense accounts and advances made by Digital to you and
complete all other procedures required of terminating employees, and by the
Effective Date you will have returned to Digital all property provided by
Digital to you including all credit, identification, and entry cards, equipment
(except as provided for on Exhibit I), automobiles, and all documents, records,
papers, notebooks, and other materials and copies thereof (regardless of the
medium on which the copy is made) related to or including any information which
is confidential to Digital.
7. Digital, without admitting and while expressly denying the commission of any
wrongful act, including but not limited to any violations of any federal, state
or local fair employment practice law, or other employment practice law, or
other employer duty or other employment-related obligation (all of which are
hereinafter referred to as "employment relations laws") or other equity, will
provide the following:
a. Payment of U.S.$54,166.66 on the first day of each calendar month beginning
with the first calendar month following the Effective Date and ending with the
earlier of (i) July 1, 1998 or (ii) the earlier of (x) the date you accept
employment with any entity which competes with Digital or (y) the date you
publicly criticize Digital. In no case will actual payment be made prior to the
expiration of the seven-day revocation period described in Paragraph 9, except
with respect to the payments which were due as of August 1, and September 1,
1996.
Actual payment of amounts described in Paragraphs 7(a) and 7(e) shall be made as
soon as reasonably practicable after each such payment date. Each payment made
shall be less any amount required of Digital by law to be withheld or elected to
be withheld by you on a voluntary basis. Any tax withholding required of Digital
resulting from the lapsing of restrictions with respect to shares of restricted
stock shall be deducted
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from the otherwise net amount of one or more of such payments described in this
Paragraph 7(a) until this obligation has been fully satisfied.
For purposes of Paragraphs 3, 7(a), and 7(e) of the Agreement, being "employed"
or "employment" means having a common law employment relationship with another
entity or engaging in any other comparable position such as independent
contractor for, owner of, consultant to, or partner with or of another entity.
For purposes of Paragraphs 7(a) and (e), "compete" means rendering services
directly or indirectly to, becoming associated with or employed in any capacity
by, or having any ownership interest (other than not more than 1% of outstanding
stock of a public company) in any individual, firm, corporation, or other entity
engaged in or actively planning to engage in any activities competitive with
those activities of Digital with respect to which you have managed or with
respect to which you have possessed or had access to Digital's confidential
information, know-how, or trade secrets (including but not limited to
information, know-how, or trade secrets relating to the research, development,
design, manufacture, marketing, sale, or distribution of any Digital product or
service with respect to which you possessed or had access to Digital's
confidential information, know-how, or trade secrets).
Notwithstanding anything to the contrary, neither your acceptance of employment
with any entity which does not compete with Digital nor your failure to attempt
to find other employment will entitle Digital to discontinue payment under
Paragraph 7(a) or provide continuation of benefits as described in Paragraphs
7(c) and 7(d).
b. As soon as practicable after the Effective Date, payment in a single sum
equal to the value of your then accrued and unused vacation time.
c. Continuation of elected and paid for health, dental, life insurance, and
disability benefits at the then current cost of such benefits to active
employees at your level until your Effective Date. Digital agrees to continue
for you and your dependents (including your mother and children who reside in
Italy) health, dental, and basic and personal accident (if applicable) life
insurance benefits through July 5, 1998, or the last date for which payment
pursuant to paragraph 7(a) is made, whichever first occurs, provided that you
continue to make timely payment therefor, subject to whatever applicable changes
are implemented by Digital for employees at your level to such plans.
Thereafter, you may be entitled to continued health and dental coverage under
the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA), such
coverage to be for a period not to exceed the statutory limit. Group universal
life insurance coverage in effect at the Effective Date may be continued under
the terms of that policy.
d. Continuation of your participation in the Digital Equipment Corporation Cash
Account Pension Plan (the "Pension Plan") and the Digital Equipment Corporation
Savings and Investment Plan (collectively, the "Plans") under the terms and
conditions of the Plans until your Effective Date. Thereafter, your rights in
the Plans shall be determined under the terms of the Plans.
e. In exchange for your promise to use the amount described below for the sole
and exclusive purpose of your participating in the Italian social security
scheme on a private basis, which promise is hereby given, payment of
U.S.$2,916.66 on the first day of each calendar month beginning with the first
calendar month following the Effective Date and ending with the earlier of (i)
the date as of which payment under Paragraph 7(a) ceases; or (ii) the date as of
which you cease to use such funds for the sole and exclusive purpose of your
participating on a private basis under the Italian social security scheme. In no
case will actual payment be made prior to the expiration of the seven-day
revocation period described in Paragraph 9.
8. You hereby acknowledge that there is an outstanding principal balance of
$60,000 under the Promissory Note dated April 2, 1993, as of the Effective Date
and that pursuant to such Note Digital has the right to demand payment of that
amount plus any accrued interest upon 30 days' prior notice after the one-year
anniversary of the Effective Date has occurred. You hereby agree that after the
first anniversary of the Effective Date, Digital may in its sole discretion
reduce any payment which may be due you under Paragraph 7(a) by an amount which
is reasonably estimated to be that amount which would be due and payable under
such Note upon such demand and upon your failure to pay the amount due following
such 30-day notice.
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9. In exchange for the consideration set forth above and for other good and
valuable consideration receipt of which is hereby acknowledged:
a. You hereby accept the foregoing, in full and complete waiver, release, and
satisfaction of any and all claims of any kind or description that you have or
may have had or may have through the date you execute the Agreement against
Digital or its officers, directors or employees including but not limited to
claims arising from any employment relations laws, contract or tort law, public
policy, law or equity or claims for expenses or other monetary or equitable
relief including any right to or claim arising out of a right, to re-employment.
You also hereby release Digital from liability for such claims and waive any
other rights relating to your employment, or your termination from employment,
with Digital. This release shall include a release from claims under the Age
Discrimination in Employment Act of 1967 (ADEA). Digital hereby advises you to
consult counsel before signing the Agreement and that you have, and are entitled
to, at least 21 days following the receipt of the Agreement to execute it,
although you are not required to use all of this period if in your sole and
unlimited discretion and judgment you choose not to do so. You are also entitled
to rescind the Agreement at any time within the seven-day period after you
execute it by written notice to Digital. This waiver of your rights under ADEA
shall not apply to any claims arising after your execution of the Agreement;
b. You agree to refrain from filing any complaint, civil action, litigation or
proceedings of any nature or description against Digital, in an judicial or
quasi-judicial forum, based upon claims released in Paragraph 9(a) except for
enforcement of the terms of this Agreement and the Restricted Stock Option
Agreements and Restricted Stock Award Agreements referred to in Paragraph 15,
below;
c. You represent that you have not filed any complaints, administrative charges
and/or lawsuits or proceedings against Digital based upon claims released in
Paragraph 9(a), with any local, state or federal court or agency and further
that you have not assigned or transferred to any person any portion of any claim
which is released or waived by this Agreement; and
d. You agree to not file, participate in as a plaintiff and/or class member, or
commence yourself, or encourage, induce, solicit or support the filing of, or
institution of any claim, suit, litigation, grievance, arbitration, cause of
action, or any other proceeding against Digital by any other person or persons
based on claims released in Paragraph 9(a) or similar claims of third parties,
whether or not such claims arise from any employment relations laws, including
but not limited to claims based on discrimination on the basis of age, sex,
handicap, disability, contract or tort law, public policy, law or equity or
claims for expenses or other monetary or equitable relief.
Notwithstanding the foregoing, you shall not be prohibited from giving testimony
in lawsuits or administrative proceedings initiated by third parties if such
testimony is compelled by legal and/or administrative subpoena. You shall not
volunteer to provide such testimony and/or encourage, induce or solicit others
to call you as a witness.
10. Digital hereby acknowledges that the foregoing is in full and complete
waiver, release and satisfaction of any and all claims of any kind or
description that Digital has or may have had or may have against you through the
date you execute the Agreement, including but not limited to claims arising from
any employment relations laws, contract or tort law, public policy, law or
equity or claims for other monetary or equitable relief, and Digital hereby
expressly releases you from liability from such claims. However, this release
shall have no force or effect as to claims, if any, by Digital that you violated
any of the provisions of the Agreement or the Restricted Stock Option Agreements
or Restricted Stock Award Agreements referred to in Paragraph 15, below.
11. It is further agreed by you and Digital that the consideration paid by
Digital hereunder is in return for specific performance by you, and that Digital
will seek and is entitled to specific performance by you in the event of a
violation of the Agreement by you in addition to any other remedies available to
Digital.
12. Neither you nor Digital shall release, reveal, publish, cause to be
published, publicize, discuss, or otherwise disclose the terms of the Agreement
except as provided for herein and to your family, accountants, and attorneys and
in Paragraph 13 of the Agreement and except as you or Digital may be obligated
to disclose on account of statutory, regulatory, or other legal requirements or
in connection with your compliance with the obligations described in paragraph
4. Both Digital and you agree not to publicly criticize or discuss, except as
mutually agreed, nor make any derogatory comments regarding, the facts and
circumstances leading to your
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departure from Digital, but you may state that your departure was voluntary.
Digital confirms that for purposes of (i) your Restricted Stock Option
Agreements, other than the Agreement dated March 12, 1993, your termination
constitutes "retirement with the consent of the Company" and (ii) your
Restricted Stock Option Agreement dated March 12, 1993, your termination was
"other than for 'Cause'."
13. The terms of the Agreement including all facts, circumstances, statements
or documents relating thereto, shall not be admissible for any purpose in any
litigation in any forum other than to secure enforcement of the terms and
conditions of the Agreement.
14. The Agreement has been reached by mutual accord of the parties hereto, and
the parties by their signatures indicate their full agreement and understanding
of its terms.
15. The Agreement includes all of the agreements of the parties relative to
your termination, and supersedes any prior agreements or representations between
the parties as to the subjects covered, including, but not limited to, the
agreements dated December 21, 1992, and February 2, 1993, respectively, between
you and Digital. You specifically agree that nothing in the Agreement modifies
your obligations and responsibilities or any terms and conditions under any
prior Employee Invention and Confidential Agreement, the Promissory Note dated
April 2, 1993 referred to in Paragraph 8, or any Restricted Stock Option
Agreement or Restricted Stock Award Agreement, and any amendment thereto,
previously executed by you, including without limitation, any non-competition,
protection of confidential information of Digital or others, and employee
obligations clauses. This Agreement has no precedential effect, value, or impact
whatsoever as to any person not a party to it.
16. Should any provision or part of any provision of this Agreement be found to
be legally unenforceable and/or against public policy, such unenforceability
shall not prevent enforcement of the remaining provisions or parts of this
Agreement.
17. The Agreement shall be interpreted under the laws of the Commonwealth of
Massachusetts. Any action to bring and try any dispute concerning the
enforcement or interpretation of this Agreement shall be done in an appropriate
court located in the Commonwealth of Massachusetts, and the parties hereby
consent to the jurisdiction of any such court for that purpose.
DIGITAL EQUIPMENT CORPORATION
By: /s/ Savino R. Ferrales
---------------------------------
Savino R. Ferrales
Vice President, Worldwide Human Resources
Date: August 28, 1996
/s/ Enrico Pesatori
---------------------------------
Enrico Pesatori
Date: August 28, 1996
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EXHIBIT I
In United States:
- Digital Celebris GL with 17" monitor
- Xerox Telecopier 7024
- Xerox Workcenter
- Motorola Micro-Tec Lite (cellular phone)
In Italy:
- Digital Celebris GL with 17" monitor
EX-11
5
COMPUTATION OF NET INCOME/LOSS PER SHARE
1
EXHIBIT 11
DIGITAL EQUIPMENT CORPORATION

COMPUTATION OF NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

YEAR ENDED
---------------------------------------------------------------------------
JUNE 29, JULY 1, JULY 2, JULY 3, JUNE 27,
1996 1995 1994 1993 1992
--------- -------- ----------- --------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net income/(loss)............. $(111,812) $121,818(b) $(2,156,063)(d) $(251,330) $(2,795,507)(e)
========= ======== =========== ========= ===========
Net income/(loss) applicable
to common and common
equivalent shares........... $(147,312)(a) $ 86,318(a)(b) $(2,166,713)(c)(d) $(251,330) $(2,795,507)(e)
========= ======== =========== ========= ===========
Weighted-average number of
common shares outstanding
during the year............. 152,052 144,907 137,090 130,409 124,864
========= ======== =========== ========= ===========
Common stock equivalents from
application of "treasury
stock" method to unexercised
and outstanding stock
options..................... -- 1,424 -- -- --
========= ======== =========== ========= ===========
Total weighted-average number
of common and common
equivalent shares used in
the computation of net
income/(loss) per common and
common equivalent share..... 152,052 146,331 137,090 130,409 124,864
========= ======== =========== ========= ===========
Net income/(loss) applicable
per common and common
equivalent share............ $ (0.97) $ 0.59(b) $ (15.80)(d) $ (1.93) $ (22.39)(e)
========= ======== =========== ========= ===========
- ---------------
(a) Includes dividends paid and declared on Series A 8 7/8% cumulative preferred
stock totaling $35,500,000.
(b) Net income and net income per common and common equivalent share include the
cumulative effect of a change in accounting principle of $64,503,000 and
$0.44, respectively.
(c) Includes dividends paid and declared on Series A 8 7/8% cumulative preferred
stock totaling $10,650,000.
(d) Net loss and net loss per common share include the cumulative effect of
changes in accounting principles of $51,026,000 and $0.37, respectively.
(e) Net loss and net loss per common share include the cumulative effect of a
change in accounting principle of $485,495,000 and $3.89, respectively.

EX-13
6
ANNUAL REPORT FOR DIGITAL EQUIPMENT CORPORATION
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EXHIBIT 13
[LOGO]
[PHOTO OF BUSINESSPEOPLE WALKING DOWN THE STREET] [PHOTO OF TWO HANDS SHAKING]
-----------------------------------------------------
DIGITAL EQUIPMENT CORPORATION
------------------------------------------------------------------------
1996 Annual Report
-----------------------------------------------------
[PHOTO OF GLOBE]
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Digital Equipment Corporation is a world leader in implementing and supporting
networked business solutions. Building on its core competencies in software,
systems, networks and services, DIGITAL--working with its business partners--is
addressing new market opportunities while supporting its existing customer base.
DIGITAL networked business solutions are helping our customers compete and win
in today's global marketplace.
These solutions are backed by an established service and support network
operating in more than 100 countries with manufacturing and logistic facilities
in the Americas, Europe and Asia-Pacific.

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CONNECTIONS
VALUE-ADDED SERVICES, SYSTEMS AND
NETWORKED BUSINESS SOLUTIONS
Digital provides networked business solutions -- directly and with its
partners -- that enable our customers to improve their performance and
competitiveness. We are focusing the company on delivering high-performance
network platforms, services and solutions targeted at growth markets that
reflect our expertise in bringing:
- - High-performance 64-bit computing to UNIX environments
- - Enterprise computing to Windows NT
- - Business computing to the Internet
In delivering these networked solutions, we are leveraging Digital's superior
technology and proven system performance, breadth and depth of IT service
expertise, best-in-class software applications and strategic alliances with
industry leaders.
- --------------------------------------------------------------------------------
ANNUAL MEETING
THE ANNUAL MEETING OF STOCKHOLDERS WILL BE HELD AT 11:00 A.M., THURSDAY,
NOVEMBER 14, 1996, AT THE WORLD TRADE CENTER, COMMONWEALTH PIER, 164 NORTHERN
AVENUE, BOSTON, MASSACHUSETTS 02210. COMMON STOCKHOLDERS OF RECORD ON SEPTEMBER
16, 1996 WILL BE ENTITLED TO VOTE AT THIS MEETING.
- --------------------------------------------------------------------------------

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[PHOTOGRAPH OF ROBERT B. PALMER]
CONNECTIONS
CHAIRMAN'S LETTER
TO OUR SHAREHOLDERS, EMPLOYEES, CUSTOMERS AND PARTNERS:
The past year was one of continued progress for Digital. We had significant
accomplishments, including the highest level of revenue in Digital's history. As
with any turnaround of this magnitude, we also had some disappointments,
including a restructuring charge that resulted in a loss for the year. When all
is said and done, however, 1996 was a year in which we strengthened the
foundation for the company's long-term success.
We introduced a clear and forward-looking corporate strategy in which I have
great confidence. It builds on our historic strengths and on opportunities for
significant growth. We formed strategic alliances with industry leaders.
Including the alliance we established with Oracle the previous year, we now have
alliances with the three largest software companies in the world -- Microsoft,
Oracle and Computer Associates -- as well as with one of the leading
telecommunications companies, MCI.
And we continued to enhance our products and services -- extending our
leadership in 64-bit computing; capturing worldwide attention with offerings
such as AltaVista, the fastest and most comprehensive search service on the
Internet; and building on the considerable advantage we enjoy by having the
best-trained and largest group of Microsoft-certified engineers in the industry.
These are important milestones in our drive to industry leadership. We can
expect occasional setbacks along the way, but the real test for Digital -- for
the management team and for employees -- is how we respond and adjust, and the
actions we take to achieve our objectives.
We have demonstrated over the past two years that Digital has become more
responsive to customer needs, more agile in responding to competitive
marketplace realities, and more willing to take the sometimes difficult actions
necessary to achieve long-term industry leadership.
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I particularly want to recognize the contributions of our employees. The
progress we continue to make is a direct result of their talent, hard work and
determination. I have often said that the position I hold is a privilege -- and
my greatest privilege is to work with the people of Digital.
OPERATIONAL REVIEW
For fiscal 1996, Digital reported a net loss of $112 million, including a $492
million restructuring charge taken in the fourth quarter. Although we have made
significant progress in reducing operating expenses during the last few years,
we are not as efficient as our top competitors. The restructuring charge will
help Digital achieve a competitive cost structure. It allows us to eliminate
7,000 positions over the year and to reduce 3.5 million square feet of space
worldwide.
Excluding restructuring and other one-time charges, Digital's net profit margin
improved from a loss of five percent in fiscal 1994 to a profit of three percent
in fiscal 1996. Total operating revenues were $14.6 billion, up five percent
over fiscal 1995, or nine percent when adjusted for divestments. This was the
highest level of revenue in the company's history, despite the fact that we have
divested non-strategic businesses during the past two years that had been
generating more than $1 billion of annual revenue.
Another positive sign was an improvement of almost five points in product gross
margin to 34 percent. This was the first time in eight years that we showed
year-over-year improvement. Our continued emphasis on asset management enabled
us to improve cash and short-term investments to a year-end balance of $2
billion. This is our strongest position in nearly five years. To enhance
shareholder value and to express our confidence in Digital's underlying
strength, we announced in July our plan to repurchase up to ten million shares
of Digital common stock.
STRATEGIES AND ACCOMPLISHMENTS
Underlying Digital's success is a corporate strategy focused on three major
growth opportunities:
- - High-performance 64-bit UNIX platforms
- - Windows NT across the enterprise
- - Internet connectivity within and between enterprises
These are areas of market transformation where there is significant potential
for breakthrough growth, and where we intend to achieve market leadership. We
have clear evidence that this strategy is working. We see it in the success of
our very large memory database technology . . . in the increasing demand for
64-bit solutions. . . and in the growing portfolio of 64-bit applications
available from our software partners. We have established clear leadership in
this area, and we intend to sustain it.
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We see it in the market's increasing recognition of Digital as a leader in
enterprise solutions for Windows NT . . . reinforced by our broad relationship
with Microsoft.
And we see it in our increasing competitive strength in the Internet market.
Digital's AltaVista Internet search service, with more than 17 million queries
each day, is one of the most popular sites on the World Wide Web. And our
network products business is one of the clear leaders in the market for
high-performance switches.
In each of these markets we also are differentiating Digital through our ability
to deliver global services and support -- services that range from multivendor
customer services and operations management to network and systems integration.
Finally, we are delivering significant value to customers by establishing
strategic alliances with best-in-class companies. Working closely with
Microsoft, for example, we are delivering products and services that integrate
Microsoft's Windows NT operating system with Digital's OpenVMS. This allows
customers to take advantage of the mission-critical capabilities of OpenVMS and
the rapidly growing number of new applications written for Windows NT.
I am confident that we have the right strategy. Our focus now is on achieving
excellence in execution. This means sharpening our market focus and implementing
an aggressive go-to-market strategy that builds on the major growth
opportunities we have identified, and on our core mission -- delivering
networked business solutions. We are targeting nine market segments -- including
data warehousing, mail and messaging, and Internet commerce -- where Digital has
key strengths, and where we have an opportunity to win significant market share.
To improve execution, we are making changes in the way we sell to enterprise
accounts, based on our experience during the past two years and feedback from
customers and partners. For example, we found that many of our customers want to
have direct contact with Digital, even if they purchase most of their Digital
products and services through indirect distribution channels. In response, we
are expanding the number of customers we cover directly, while increasing
business opportunities for our channel partners.
PRIORITIES FOR 1997
One of the most important steps we can take to assure Digital's success is to
dramatically improve customer and partner loyalty. We define loyal customers as
people who prefer to do business with Digital, and who are proud to recommend us
to others.
4
7
We are implementing several initiatives that will make it easier and more
satisfying for customers and partners to do business with us. From reliable,
on-time delivery of products and services, to quick and accurate responses to
telephone queries, we are committed to doing whatever it takes to ensure that
every customer engagement is a quality, rewarding and memorable experience. To
drive home the importance of these initiatives, improvement in customer loyalty
is one of the major criteria I will use to measure and reward the management
team in fiscal 1997.
We understand that we will not earn customers' loyalty without a worldwide
workforce that is fully engaged in the task at hand. Digital will prosper only
if each employee understands the company's strategy and direction, and the
important role he or she plays in our success. We have a responsibility to
recognize the contributions employees make to the company, provide them with the
tools and support they need to succeed, and reward excellence. It is our people,
not our technology, that have always been the backbone of this company. Our
objective this year is to forge a new and stronger partnership between Digital
and its employees.
A measurable increase in customer loyalty and employee engagement will
accelerate our progress toward improved profitability and growth.
There is much to do, but I am confident that we have the strategy, the products
and services, the partnerships and the commitment necessary for continued
financial improvement in fiscal 1997. Our objective for the next two years is to
achieve a level of financial performance that puts us among the industry
leaders. We owe it to our shareholders to achieve and sustain these leadership
goals.
Digital has made significant improvements during the last two years, but that
has only raised our expectations for the future. We want customers and partners
to regard Digital as the information technology vendor of choice. We want
employees to see Digital as the most rewarding place to work. And we want
shareholders to consider Digital the best long-term investment in the industry.
We will settle for no less.
/s/ ROBERT B. PALMER
................................................................................
Robert B. Palmer
Chairman of the Board,
President and Chief Executive Officer
5
8
CONNECTIONS
STRATEGY AND GROWTH
[PHOTOGRAPH OF A BUSINESSMAN AND A BUSINESSWOMAN
SHAKING HANDS IN A HIGH-RISE OFFICE BUILDING.
SUPERIMPOSED ON THE PHOTOGRAPH IS A PORTION OF A MAP
OF THE WORLD AND THE WORDS "64-BIT UNIX", "WINDOWS
NT" AND "INTERNET".]
FINDING NEW WAYS TO BRING EVERYONE TOGETHER TO CREATE NETWORKED BUSINESS
SOLUTIONS
The world is rapidly becoming a place where anyone, anywhere, can gain immediate
access to information. This is creating new opportunities for businesses to
become "networked enterprises" intimately linked with customers and partners.
New network and enterprise applications hold the promise of reducing computing
and communication costs. They present the opportunity to build cohesive
infrastructures to support day-to-day operations. At the same time, these new
networked applications can provide our customers with the information needed to
manage change and implement corporate initiatives that will deliver greater
value to their customers and shareholders.

Digital has the worldwide service organization in place to ensure these
solutions work and are fully integrated with customers' existing computer
environments.
6
9
- ------------------------------------------------------------------------------
GLOBAL PARTNERS DIGITAL has formal alliances with Microsoft, Oracle, Computer
Associates and MCI. We work closely with leading application developers
including SAP, SAS, Netscape, Baan and PeopleSoft. And we support the
distributors and value-added resellers who provide the solutions our customers
need to compete in a changing world.
- ------------------------------------------------------------------------------
HIGH-PERFORMANCE 64-BIT UNIX
High-performance 64-bit UNIX platforms play an important role in the networked
enterprise. Billion-instruction-per-second microprocessors are bringing the
power of the mainframe to the desktop. Clusters, 64-bit very large memory
technology and data warehousing are changing the way data is stored, organized
and retrieved to provide customers with more and better information on which to
base decisions.
WINDOWS NT ACROSS THE ENTERPRISE
Windows NT is another prerequisite for building the networked enterprise. The
growing popularity of Windows NT reflects the natural evolution of Windows-based
computing from the desktop across the enterprise. Working with Microsoft, and
building on the natural affinity between Windows NT and OpenVMS, we are
integrating desktop systems into the enterprise network.
This enables customers to choose the right computing environment for each
application -- 64-bit UNIX for high-performance computing, Windows NT for
enterprise client/server applications and 64-bit OpenVMS for high-availability
and mission-critical systems -- with the knowledge that Digital will provide the
services needed to make everything work together.
INTERNET CONNECTIVITY
Internet connectivity plays a key role in many of these solutions. Each business
within Digital is developing connectivity products and services to support
Internet communications. And, to provide a corporate focus, we created the
Internet Software Business Unit to capitalize on these investments in Internet
technology and support services.
7
10
CONNECTIONS
INTERNET AND INTRANET COMPUTING
[TWO PHOTOGRAPHS, ONE OF A BUSINESSMAN USING A
DIGITAL LAPTOP COMPUTER OUTSIDE, THE OTHER OF THREE
INDIVIDUALS WEARING HARDHATS AT A CONSTRUCTION SITE
AND USING A DIGITAL LAPTOP COMPUTER.]
OPENING THE NETWORK FOR "ELECTRONIC COMMERCE," WITH CUSTOMERS AND SUPPLIERS
The explosive growth of the Internet -- combined with the deregulation of the
telecommunications industry -- is changing the very definition of networking. In
the past, a network was easily defined. It covered a specific area. It served
specific users. It was usually optimized for specific applications. And it was
expensive to build and maintain.
The Internet is changing all that. It gives small and medium-sized businesses
the same networking capabilities as their larger competitors.
The Internet is the global network that connects people to people, people to
information and business to business. It provides an opportunity to reach out to
employees, customers and suppliers around the world without having to invest in
a dedicated networking infrastructure.
Digital is focusing its resources on Internet business applications and Internet
Service Providers. We're helping our customers use the Internet as a business
tool to capitalize on both the public and the private side of the network to:
- Expand their market reach
- Vastly increase intracompany productivity
- Securely connect and collaborate as virtual organizations
- -------------------------------------------------------------------------------
INTERNET SERVERS
"DIGITAL'S TP INTERNET SERVER, WITH ITS CAPABILITY TO DELIVER SECURE
TRANSACTION PROCESSING OVER THE INTERNET, WILL PROVIDE A NEW DIMENSION OF
FUNCTIONALITY FOR CORPORATE INTRANET AND ELECTRONIC COMMERCE."
Jim Johnson, Chairman,
The Standish Group
- -------------------------------------------------------------------------------
8
11
- -------------------------------------------------------------------------------
ELECTRONIC COMMERCE
Digital provides the servers, software and services needed to support mobile
computing, data access, electronic mail, electronic commerce, home shopping and
banking, and collaborative sales, marketing and engineering programs over both
the Internet and corporate Intranets.
- -------------------------------------------------------------------------------
[PHOTOGRAPHS OF A DIGITAL SERVER AND PERSONAL
COMPUTER, AN INDIVIDUAL WORKING AT A DIGITAL
PERSONAL COMPUTER AND HANDS MOVING RAPIDLY ON A
KEYBOARD.]
THE PUBLIC NETWORK
The public side of the Internet supports electronic commerce, a global
electronic mail network and the World Wide Web. Here, companies can publish
corporate information, technical data, price lists and multimedia marketing
material for everyone to access.
According to the Giga Information Group, U.S. companies already buy $500 billion
worth of goods electronically each year. And the volume is growing because
electronic commerce does away with much of the paperwork associated with
traditional sales channels. It creates an almost friction-free market where
business is transacted at electronic speeds.
Digital was a pioneer in electronic commerce and Internet communications. Twenty
years ago, we were the first computer company to be on the ARPANET, the
forerunner of the Internet. We were the first computer company to use the
Internet as an interactive sales tool. Today, our World Wide Web site contains
more than 6,000 pages of product and market information and is accessed by
customers and business partners more than 150,000 times a week.
We are putting this experience to work for our customers. For example, Digital
is working with Internet Payment Processing Inc. to build the PayPro Network,
Canada's first nationwide home banking and shopping system. The new network will
enable consumers to shop over the Internet using a card reader and keypad to
"charge" their purchases against credit and bank cards. Using Digital network
technology, 20 AlphaServer systems will process consumer sales and host retail
and financial Web sites and a virtual shopping mall. These systems will support
home banking services by giving the consumer access to Canada's nationwide
INTERAC banking network.
- --------------------------------------------------------------------------------
INTERNET SERVICES
"AS OUR BUSINESS SKYROCKETED, THE ALPHA MACHINES CAME ALONG AT JUST THE RIGHT
TIME. ALPHA HAS THE POWER AND EXPANDABILITY TO KEEP UP WITH THE EXPONENTIAL
GROWTH COMPANIES LIKE LYCOS DERIVE FROM THE INTERNET."
Robert J. Davis, President and CEO, Lycos, Inc.
- --------------------------------------------------------------------------------
9
12
- -------------------------------------------------------------------------------
ELECTION RETURNS
WORKING WITH SPAIN'S LEADING NEWSPAPER -- EL MUNDO -- DIGITAL CREATED A
MULTIMEDIA WORLD WIDE WEB SITE TO PROVIDE COMPLETE, UP-TO-THE-MINUTE COVERAGE OF
THE COUNTRY'S NATIONAL ELECTIONS. THIS INTERNET SITE AVERAGED MORE THAN 20,000
"HITS" A DAY DURING THE CAMPAIGN AND HANDLED MORE THAN 150,000 "HITS" IN THREE
HOURS ON ELECTION EVE. BUT THIS WAS NOT AN ISOLATED DEMONSTRATION. WORKING WITH
THE MEDIA, DIGITAL HAS BUILT SIMILAR NATIONAL ELECTION WEB SITES IN THE U.S.,
BELGIUM AND ITALY.
- -------------------------------------------------------------------------------
THE PRIVATE NETWORK
There's also a private side to the Internet -- the Intranet, the network within
the network. Many companies -- including Digital -- are building private
networks using Internet technology and communications to link their offices and
employees together and to create "virtual" networks with customers, partners and
suppliers.
Digital provides the products and services needed to make these enterprise
networks safe and secure. As part of our new AltaVista family of Internet
software, we developed "firewalls" to protect proprietary information and keep
intruders from "hacking" into corporate systems.
The AltaVista software family also includes "tunneling" software that encrypts
data traveling over the Internet to create secure channels of communication,
when, where and as needed. This encryption software is critical in electronic
commerce applications where financial transactions may travel across the
network.
During the year, we also developed the TP Internet Server, an integrated
hardware/software solution for Internet-based transaction processing. Designed
for financial services, insurance claims, order processing, inventory control
and distribution applications, Digital's TP Internet Server software encrypts
and authenticates each transaction. It also ensures that each transaction is
completed and confirmed through a "two-phase-commit" process.
In addition to software, Digital builds a complete family of ready-to-run
Internet and Web servers. And we provide all the software, services and support
customers need to create their own Web sites and link their businesses to remote
offices, customers and suppliers.
As part of our Internet service practice, Digital launched a data center for
Internet commerce, the Digital Internet Exchange. Here, customers can keep their
Web server farms and data at a major Internet hub for instant access and
transmission over multiple high-speed telecommunication links. This eliminates
the usual charges associated with reaching a network hub and lowers costs
through shared support services and high-speed communication links.
- -------------------------------------------------------------------------------
INTRANET GROWTH
"THE INTERNET REVOLUTION HAS COME HOME -- TO INTERNAL CORPORATE NETWORKS. CHEAP,
FLEXIBLE 'INTRANETS' ARE SPREADING EVERYWHERE -- AND BECOMING A NEW MANAGEMENT
TOOL."
Business Week, February 26, 1996
- -------------------------------------------------------------------------------
10
13
THE WORLD'S MOST POWERFUL SEARCH ENGINE
To demonstrate the power of our Internet AlphaServer systems and AltaVista
software, we introduced a free Internet search service at
http://www.altavista.digital.com.
AltaVista is one of the most popular World Wide Web sites -- averaging more than
17 million hits a day. This search engine has indexed every word in more than 30
million Web pages and 13,000 newsgroups -- more than any other search engine.
Powered by Digital's 64-bit AlphaServer system, it can conduct a lightning-fast
search to find information about any subject.
We make this technology available to our customers and other Internet service
providers. Digital recently announced the first two affiliate partners in the
AltaVista network: Telia TeleCom AB of Sweden and Telstra/Yellow Pages of
Australia. This worldwide network will be made up of a series of AltaVista
"mirror" sites that will provide both high-performance search services in
regional areas and local features designed to increase the value of AltaVista
services.
Yahoo!, one of the leading search/indexing services on the Web, is incorporating
the AltaVista search service into its Internet guide. Increasingly, Digital
customers are using AltaVista search software to index the content of their
Intranets. With the AltaVista search engine, their employees can pinpoint
information without searching through dozens of separate databases.
- -------------------------------------------------------------------------------
ELECTRONIC COMMERCE
"DIGITAL HAS BEEN EXTREMELY VISIBLE AS A LEADER IN INTERNET COMPUTING. THIS
ESTABLISHED EXPERTISE ALONG WITH THE FLEXIBILITY AND POWER OF THE ALPHASERVER
MADE IT APPARENT THAT THIS WAS THE SYSTEM WE NEEDED TO BUILD OUR SERVICE UPON.
THE SERVERS ARE WELL EQUIPPED TO HANDLE MULTIPLE AND MULTIFUNCTION TRANSACTIONS
AND CONTAIN THE SCALABILITY THAT WILL ALLOW US TO QUICKLY AND EASILY EXPAND OUR
SYSTEM AS OUR RETAIL AND CONSUMER BASE INCREASES."
Wayne Simpson, Executive Vice President,
Operations, The PayPro Network (Canada)
- -------------------------------------------------------------------------------
DIGITAL, MCI AND MICROSOFT
To help customers capitalize on Internet technology, Digital, MCI and Microsoft
have formed a strategic alliance. Together, we're showing customers how to use
the Internet to support concurrent engineering programs, home banking services,
online catalog sales, EDI (Electronic Data Interchange), videoconferencing and
multimedia applications.
[PHOTOGRAPH OF DIGITAL ALPHASERVER 4100 SYSTEM, NEXT TO WHICH IS THE FOLLOWING
TEXT:]
- --------------------------------------------------------------------------------
The Digital AlphaServer 4100 System is part of Digital's complete family of
ready-to-run Internet and Intranet servers. Like all AlphaServer systems, it
provides the leadership performance expected of 64-bit systems -- high
availability, data integrity and flexible scalability.
- --------------------------------------------------------------------------------
11
14
CONNECTIONS
SYSTEMS AND ENTERPRISE COMPUTING
[PHOTOGRAPH OF A SCIENTIST WORKING IN A LABORATORY;
PHOTOGRAPH OF INTERCONNECTED HELIXES]
BUILDING ALLIANCES TO HELP CUSTOMERS IMPLEMENT NETWORKED BUSINESS APPLICATIONS
Information is an asset. To get the best possible return on that asset you need
to manage and disseminate information across the enterprise.
Digital builds a complete range of Alpha and Intel servers for data warehousing,
enterprise-wide mail and messaging systems, continuous computing and other
enterprise applications. These platforms are designed for network applications
where they work together to make information readily available when, where and
as needed.
Digital has a full complement of ITservices to support these platforms. We help
customers plan, design, implement and manage complete business solutions. And we
integrate these solutions into their IT environments and make sure that
everything works together.
We offer a choice of operating systems -- Windows, Windows 95, Windows NT, UNIX
and OpenVMS -- together with the software needed to integrate these systems into
a seamless client/server environment. And, through partnerships with Oracle,
Sybase, Informix, Software AG and other database software companies, we provide
the ability to create and manage massive databases built around 64-bit Very
Large Memory technology -- VLM64.
Although a number of companies announced 64-bit chips this year, VLM64
technology and 64-bit system performance require a 64-bit operating system and
64-bit applications. Digital has the operating systems and applications needed
to take full advantage of 64-bit microprocessor technology -- now.
- -------------------------------------------------------------------------------
"THIS (THE DIGITAL/MICROSOFT ALLIANCE FOR ENTERPRISE COMPUTING) IS A RENEWAL OF
OUR COMMITMENT TO ALPHA. IT IS A RESOUNDING ENDORSEMENT OF ALPHA AS A PREMIER
PLATFORM."
Bill Gates, Chairman and CEO,
Microsoft Corporation
- -------------------------------------------------------------------------------
12
15
- -------------------------------------------------------------------------------
PINPOINTING MARKETS Many pharmaceutical companies, financial institutions and
direct marketing companies are capitalizing on Digital's 64-bit Very Large
Memory technology to build data warehouses, transforming operational data into
intelligent information to spot trends, analyze sales and pinpoint prospects.
- -------------------------------------------------------------------------------
[PHOTOGRAPH OF DIGITAL ALPHASERVER 8400 SYSTEM;
PHOTOGRAPH OF A SCIENTIST LOOKING AT AND FILLING
TEST TUBES; PHOTOGRAPH OF THE INSIDE OF A MEDICINE
CABINET.]
DIGITAL UNIX: THE 64-BIT ADVANTAGE
Digital has the only 64-bit UNIX operating system to receive X-Open branding for
UNIX 95. Digital UNIX meets all the standards customers use to define open
systems. Standards simplify software development, multivendor systems
integration and the porting of applications from one system to the next to
protect long-term software investments. Implementing industry standards, our
partners have created a full range of 64-bit applications to run under Digital
UNIX.
From data warehousing and online transaction processing to visual computing and
genetic mapping, 64-bit Digital UNIX is rapidly becoming the operating system of
choice. It's ideal for applications that demand a robust, scalable and
high-performance operating environment. It offers unsurpassed interoperability
with Windows. It supports 64-bit database software and symmetric
multiprocessing. And, when coupled with an AlphaServer system, Digital UNIX
delivers mainframe performance and reliability at a fraction of mainframe costs.
BREAKING THE LIMITS OF 32-BIT MEMORY
While 32-bit systems -- including large mainframes -- support only four
gigabytes of memory, an enterprise-level AlphaServer running Digital UNIX or
OpenVMS will support six gigabytes. A high-end AlphaServer 8400 can support 14
gigabytes. And that's just for starters. Theoretically, a 64-bit system could
support 4.5 billion times the memory of a 32-bit system.
- -------------------------------------------------------------------------------
ALPHA WORKSTATIONS
WITHIN A THREE-MONTH PERIOD IN 1996, DIGITAL'S 64-BIT ALPHA ARCHITECTURE WAS
CHOSEN FOR THREE MULTIMILLION-DOLLAR U.S. DEFENSE DEPARTMENT CONTRACTS.
ALTOGETHER, THE ARMY WORKSTATIONS, THE AIR FORCE DESKTOP V AND AIR FORCE
WORKSTATIONS AWARDS ARE WORTH UP TO $1.2 BILLION.
- -------------------------------------------------------------------------------
13
16
- --------------------------------------------------------------------------------
WINDOWS NT INTEGRATION
"DIGITAL HAS THE LEADERSHIP POSITION IN PROVIDING NT-BASED HIGH-PERFORMANCE,
PRICE/PERFORMANCE PLATFORMS FOR PRODUCTION, ENTERPRISE APPLICATIONS. ABERDEEN
DOES NOT BELIEVE THAT ANY OTHER MAJOR SYSTEMS SUPPLIER WILL BE ABLE TO SURPASS
DIGITAL'S POSITION WITHIN THE NEXT SEVERAL YEARS."
The Aberdeen Group Inc.
- --------------------------------------------------------------------------------
Digital's scalable Alpha architecture can support all the memory ever needed for
even the most complex database and scientific applications. And those
applications will run at blinding speed. For example, with Oracle 64-bit
database software, some applications run up to 200 times faster than they do
with the fastest 32-bit system.
Oracle is not alone in developing software to capitalize on VLM64 technology.
Almost every major database company -- including Sybase, Informix, PeopleSoft,
SAP and Red Brick -- is working with Digital to utilize 64-bit technology in the
implementation of next-generation data warehousing, decision support, online
transaction processing and thousands of business and vertical applications.
TRUCLUSTER SHARED MEMORY SYSTEMS
This year, we introduced Digital UNIX TruCluster Solutions. In a TruCluster
system, an ultrafast memory-to-memory interconnect joins multiple computers so
they can work together sharing memory as well as data storage. TruCluster
Solutions bring unprecedented levels of performance, availability and
affordability for enterprise computing applications.
THE ALLIANCE FOR ENTERPRISE MANAGEMENT
In many cases, business solutions may be deployed around the world. This
requires sophisticated software and worldwide support services. Digital and
Computer Associates formed The Alliance for Enterprise Management to create a
standard, unified enterprise management environment across Windows NT, UNIX,
OpenVMS and legacy mainframe systems.
WINDOWS NT: INTEGRATING THE ENTERPRISE
While PCs have greatly enhanced the productivity of individual employees,
organizational productivity has lagged as most client/server solutions have been
limited to local area networks.
This has made it difficult for people in different departments to share
information and work together. The answer is to create a single computing
environment that integrates personal computers and servers with enterprise
databases, legacy systems and global networks.
Microsoft Windows NT provides this environment. It is the "missing ingredient"
needed for the full implementation of client/server computing. It reflects the
natural evolution of Windows from the desktop to the enterprise. Microsoft
Windows is the standard for desktop computing and Windows NT is the emerging
standard in client/server computing environments.
- --------------------------------------------------------------------------------
DATA WAREHOUSING
RHONE-POULENC RORER, AN INTERNATIONAL PHARMACEUTICAL COMPANY, BUILT A DATA
WAREHOUSE CONTAINING OVER 400 BILLION CHARACTERS OF INFORMATION AROUND
ALPHASERVER SYSTEMS, DIGITAL'S VLM64 TECHNOLOGY AND ORACLE7 SOFTWARE.
- --------------------------------------------------------------------------------
14
17
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MOBILE AND WIRELESS COMPUTING
THE CLYDESDALE BANK IN SCOTLAND PLACED A MILLION POUND STERLING ORDER FOR
DIGITAL HINOTE ULTRA NOTEBOOK COMPUTERS FOR ITS "MOBILE" BRANCH MANAGERS WHO
WORK WITH BANK CUSTOMERS IN REMOTE LOCATIONS.
- -------------------------------------------------------------------------------
INTEGRATING WINDOWS NT WITH OPENVMS AND UNIX
As part of the Digital/Microsoft Alliance for Enterprise Computing, the two
companies are working together to develop the tools and application program
interfaces needed to integrate Windows NT with OpenVMS and Windows NT with
Digital UNIX. Through this program, we bring the strengths of Digital operating
systems -- high availability, data integrity, system security and
scalability -- to Windows NT client/server environments. Microsoft has
implemented Windows NT on Alpha platforms and Digital has implemented its proven
cluster technology on Windows NT systems. We are also working with Microsoft to
develop a 64-bit version of Windows NT. This will be released first on Alpha.
AlphaServer systems and Digital's new Alpha XL personal workstations provide the
broadest platform scalability for Windows NT and are priced competitively with
Intel-based systems. With the announcement of Digital FX!32 translation and
emulation software, a 64-bit AlphaServer system will have the ability to run
shrink-wrapped 32-bit Windows or Windows NT applications as fast or faster than
an Intel Pentium system.
DIGITAL'S INTEL SERVERS AND PCS
With the growing acceptance of Windows NT as an enterprise operating system,
more and more customers are looking for high-performance Intel-based servers, NT
workstations, industrial-strength PCs and comprehensive service and support.
Digital has a complete family of Pentium-based servers, workstations, and
notebook and personal computers optimized for business use. In addition, we have
a full line of services to help customers implement network solutions where
Windows, Windows 95, Windows NT, Digital UNIX, OpenVMS and other systems work
together in a seamless environment.
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS
TELIA TELECOM AB, SWEDEN'S NATIONAL TELEPHONE CARRIER, INSTALLED A $9 MILLION,
ALPHA-BASED MESSAGE PROCESSING SYSTEM TO STREAMLINE ITS CUSTOMER CARE SYSTEM TO
MAKE IT POSSIBLE TO BILL ANY TYPE OF SERVICE -- TELEPHONY, MOBILE SERVICES, DATA
COMMUNICATION SERVICES, INTERNET SERVICES -- ON A SINGLE BILL.
- -------------------------------------------------------------------------------
[PHOTOGRAPH OF DIGITAL ALPHASERVER 8200 AND
ALPHASERVER 8400 ENTERPRISE SYSTEMS.]
- -------------------------------------------------------------------------------
With VLM64 technology, Digital AlphaServer 8200 and AlphaServer 8400 enterprise
systems are ideal for data warehousing, high-performance technical computing,
and large business, manufacturing and financial applications.
- -------------------------------------------------------------------------------
15
18
CONNECTIONS
TECHNOLOGY AND NEW MARKETS
[PHOTOGRAPH OF A MAN WORKING AT A DIGITAL PERSONAL
COMPUTER. THE SCREEN SHOWS A DIAGRAM OF A
MICROPROCESSOR; PHOTOGRAPH OF A PORTION OF A
MICROPROCESSOR.]
PROTECTING YOUR INVESTMENT IN ENTERPRISE SYSTEMS, NETWORKS AND APPLICATIONS
Advances in technology open new markets. Digital minicomputers created a new
market when they brought information technology out of the data center and into
the world. With the development of Ethernet, we helped create the market for
local area networks. Today, new technologies are opening new markets for data
warehousing, visual computing, Intranets and other advanced solutions.
Digital is a leader in focusing research and development on customer needs. This
past year, we invested more than a billion dollars in research and development.
Some of the dividends from this investment are detailed in this annual report.
We developed the world's fastest Internet search engine, software that allows
64-bit Alpha systems to run 32-bit personal computer software as fast or faster
than Pentium systems, and a new Alpha microprocessor that can process more than
two billion instructions per second.
Semiconductors and other advanced components determine the performance of a
system or a network and the applications that run on it. Digital has developed
the key components needed to build enterprise networks and to provide Alpha
systems with superior performance and price/performance to support enterprise
applications. And we sell these components to other manufacturers.
16
19
- -------------------------------------------------------------------------------
DEVELOPING NEW PRODUCTS DIGITAL Semiconductor is working with manufacturers of
mobile phones, set-top boxes for cable TV and PDAs (Personal Digital Assistants
to create highly intelligent devices built around the StrongARM chip that
delivers workstation performance on AA batteries.
- -------------------------------------------------------------------------------
[PHOTOGRAPHS OF DIGITAL'S STRONGARM CHIP, SET-TOP
BOXES FOR CABLE TV, PERSONAL DIGITAL ASSISTANTS, A
CELLULAR PHONE AND A NOTEBOOK COMPUTER.]
ALPHA: THE WORLD'S FASTEST MICROPROCESSOR
Digital has been investing in semiconductor technology since 1974. In 1985 we
announced the first 32-bit microprocessor. And in 1992 we introduced the Alpha
64-bit microprocessor.
The 64-bit Alpha chip gave us a two-to-one performance advantage over the
fastest 32-bit microprocessor then on the market. And we have maintained this
two-to-one performance lead year after year through continuous investment in
semiconductor development and process technology. This year, we brought our new,
state-of-the-art semiconductor manufacturing facility on line. This new facility
combines the latest eight-inch wafer, submicron fabrication processes with
proven semiconductor design, development and simulation capabilities.
- -------------------------------------------------------------------------------
IP SWITCHING
"THE BREADTH OF DIGITAL'S NETWORK ARCHITECTURE IS UNRIVALED IN TERMS OF STARTING
LOW AND MOVING UP TO UNPRECEDENTED IP (INTERNET PROTOCOL) SWITCHING PERFORMANCE
AT THE HIGH END. DIGITAL'S REPUTATION OF OPENNESS, WORLDWIDE SERVICE AND
ENGINEERING EXCELLENCE IS FURTHER CORROBORATED WITH THIS ANNOUNCEMENT (THE
INTRODUCTION OF THE GIGASWITCH/IP)." John Morency, Network Consultant, The
Registry, Inc.
- -------------------------------------------------------------------------------
We continue to push the pace. On July 8th, we strengthened our four-year claim
to the world's fastest and highest-performance microprocessors with the
announcement of the 500 MHz Alpha 21164 RISC microprocessor. With peak execution
rates of up to two billion instructions per second, this chip pushed the
performance envelope for visual computing applications including
videoconferencing, 3-D modeling, video editing, multimedia authoring, image
rendering and animation.
No fewer than 22 computer manufacturers are building high-performance
workstations and systems around Alpha microprocessors. Mitsubishi is building
Alpha microprocessors under license from Digital to provide a second source for
this growing market. This year, Samsung became the second major semiconductor
manufacturer to form an alliance with Digital to manufacture and market Alpha
microprocessors and to incorporate them into computer products.
17
20
- -------------------------------------------------------------------------------
"BEST NEW PRODUCT"
ASPEN SYSTEMS' ALPHA-BASED SUMMIT POWER SERVER WAS CHOSEN BY GOVERNMENT COMPUTER
NEWS AS "BEST NEW PRODUCT, SERVER CATEGORY" AT THE SPRING 1996 FEDERAL OFFICE
SYSTEMS EXPOSITION (FOSE) IN WASHINGTON, D.C. ASPEN IS AMONG THE GROWING NUMBER
OF COMPANIES -- INCLUDING RAYTHEON, DESKSTATION TECHNOLOGY, POLYWELL SYSTEMS AND
MICROWAY -- WHO ARE BUILDING SYSTEMS BASED ON DIGITAL'S ALPHA MICROPROCESSOR.
- -------------------------------------------------------------------------------
WORKSTATION PERFORMANCE ON AA BATTERIES
Digital is also becoming a growing force in developing and manufacturing
low-power microprocessors for mass-market electronic products. These include
set-top boxes for cable TV, PDAs (Personal Digital Assistants) -- palmtops and
digital "organizers" -- and handheld computers, electronic games and mobile
phones.
In 1995, we formed a strategic relationship with Advanced RISC Machines, Ltd.
(ARM), developers of the microprocessor that's at the heart of Apple's Newton
MessagePad 130. This alliance brought together Digital's high-speed design and
process strengths with ARM's low-power expertise.
The result is Digital's StrongARM chip, introduced this year. This new,
low-price micro-processor combines supercomputer performance with low-power
dissipation, while processing from 115 MIPS (million instructions per second) to
more than 250 MIPS. This is a two-to-one advantage in both absolute performance
and price/performance over competing microprocessors. Normal mode power is as
little as 150mW (milliwatts) and sleep mode consumes only 50uA
(microamps) -- enabling the StrongARM chip to run on AA batteries.
Low power consumption makes the StrongARM microprocessor ideal for pocket-sized
mobile devices and provides the processing power needed to support handwritten
and voice input, voice output and advanced peripherals integration. For example,
Digital has already ported its DECtalk speech synthesis technology to the ARM
architecture to enable PDAs to "speak" with advanced hands-free text-to-speech
capabilities.
AN EXPLODING MARKET
The market for PDAs is expected to triple over the next two years as the next
generation of palmtop or handheld computers is introduced. The StrongARM
architecture already has been selected by Oracle for its new network computer
(nc) reference and by Apple for selected models of its next-generation Newton
PDA.
In addition to microprocessors, Digital builds a wide range of specialized chips
for data communications, multimedia and other computer applications.
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ATM (ASYNCHRONOUS TRANSFER MODE)
"WE WANT TO SHOW THE WORLD THAT ATM IS THE SWITCHING TECHNOLOGY OF THE FUTURE, A
TECHNOLOGY THAT CAN HANDLE APPLICATIONS LIKE VIDEO-CONFERENCING AND REALTIME
DATA TRANSFER. WE ARE USING DIGITAL'S GIGA-SWITCH/ATM SYSTEM TO DEVELOP THOSE
APPLICATIONS."
Bernd Weise, Project Manager, DeTeBerkom GMBH
(a subsidiary of Deutsche Telekom)
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21
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INTERNET CONNECTIVITY
AT THE CYBERSMITH STORE IN BOSTON'S HISTORIC FANEUIL HALL, MORE THAN 60
COMPUTERS ARE CONNECTED TO A DECHUB ETHERNET SWITCH AND ROUTEABOUT MODULE FOR
INTERNET CONNECTIVITY VIA T1 LINES. ACCORDING TO CYBERSMITH PRESIDENT CARL
ROSENDORF, "WITH THE DEPTH AND VARIETY OF TECHNICAL EXPERIENCES OFFERED AT
CYBERSMITH, WE NEEDED A NETWORK WITH THE HIGHEST LEVEL OF FLEXIBILITY AND
DEPENDABILITY. DIGITAL HAS PROVIDED AN EXCELLENT SOLUTION FOR US."
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HIGH-PERFORMANCE NETWORK COMPONENTS
We manufacture a complete line of network adapters, hubs, internetworking
products, high- performance digital switches and management software for
entry-level and enterprise networks based on a hardware and software
architecture that provides the flexibility to create virtual LANs and networks.
According to International Data Corporation, Digital shipped more remote access
server ports than any other vendor in 1995. And the Dell'Oro Group ranked
Digital first in FDDI switching revenue and ports shipped worldwide in 1995.
Digital's new GIGAswitch/IP, the industry's fastest Internet Protocol (IP)
switch, delivers up to 18 million packets per second to provide the best
price/performance solution to the bandwidth problems found on many traditional
backbone and routed networks. It implements the enVISN (Enterprise Virtual
Intelligent Switched Network) architecture, which provides central
administration with local control. It enables connections to local and wide area
networks, remote users and ATM and other future technologies, to protect
customer investments as networks grow to handle increased traffic.
Based on this architecture, Digital developed a complete family of switch
products to integrate all major LAN technologies -- from desktop to
enterprise -- into a cost-effective, seamless and flexible multigigabit system.
The new VNswitch complements GIGAswitch backbone solutions to address the
high-performance, low-latency and low cost-of-ownership needs of today's
client/server environments.
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ALPHA PERFORMANCE
"DIGITAL'S 500 MHZ ALPHA 21164 SHOULD KEEP ALPHA IN THE PERFORMANCE LEAD, EVEN
AS INTEL ROLLS OUT ITS 0.28-MICRON PROCESS FOR PENTIUM PRO IN 1997. ALPHA
PERFORMANCE HAS INCREASED BY AN IMPRESSIVE 70 PERCENT SINCE THE PENTIUM PRO WAS
ANNOUNCED LAST FALL." Linley Gwennap, MicroDesign Resources
- -------------------------------------------------------------------------------
[PHOTOGRAPH OF AN ALPHA MICROPROCESSOR AND STRONGARM
MICROPROCESSOR.]
- -------------------------------------------------------------------------------
Semiconductor Leadership: Digital Alpha and StrongARM microprocessors are
setting new performance standards. The new 500MHz Alpha 21164 microprocessor
executes up to two billion instructions per second, while Digital's StrongARM
microprocessor delivers workstation performance on AA batteries.
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19
22
CONNECTIONS
INTEGRATION, OPERATIONS MANAGEMENT
AND MULTIVENDOR SERVICES
[TWO PHOTOGRAPHS, ONE OF TWO BUSINESSMEN OUTDOORS IN
A CITY ENGAGED IN A CONVERSATION; ONE OF SEVERAL
BUSINESSPEOPLE AT A MEETING IN A ROOM WITH A MAP OF
THE WORLD. CLOCKS SHOWING TIME IN VARIOUS LOCATIONS
AROUND THE WORLD ARE SUPERIMPOSED NEXT TO THE
PHOTOGRAPHS.]
WORLDWIDE SERVICE PARTNERSHIPS SUPPORT NETWORKED BUSINESS SOLUTIONS
More and more businesses are evolving into networked enterprises where
employees, customers, business partners and suppliers share ideas and work
together. Reducing network support costs and ensuring the availability of
network resources 24 hours a day, 365 days a year is becoming a priority.
Digital customers and partners are seeking assistance in three critical areas:
the integration of system- and network-based solutions, product service and
interoperability support across multivendor environments, and the management of
information technology operations.
These challenges cannot be met by a company that works on its own. Almost every
successful information technology implementation is a partnership between the
customer and the systems integrator, database and application companies,
platform developers and service organizations.
By working together, customers and computer companies can support existing
computer environments and anticipate future needs. Almost without exception,
these environments include hardware and software from different vendors. That's
why it is not enough for a computer company to support its own products. It must
partner with other computer companies and work with its channel partners to meet
the needs of its customers. And it must have the resources to support
multivendor computing environments and networks wherever they're found.
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ENTERPRISE APPLICATIONS
"WE WENT THROUGH AN RFP (REQUEST FOR PROPOSAL) PROCESS TO SELECT THE VENDOR. A
COMBINATION OF THINGS LED US TO CHOOSING DIGITAL...BUT, PRIMARILY, WE THOUGHT
THEY UNDERSTOOD HOW SAP RAN ON THEIR BOX BETTER THAN THE COMPETITORS DID, AND WE
THOUGHT THEY WOULD BE THERE TO SUPPORT US THROUGH THE IMPLEMENTATION PROCESS."
Tony Kenzie, Director of Information Services,
Borden, Inc.
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23
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MANAGING CHANGE
Implementing new applications, integrating new technologies, managing
multivendor networks and supporting a growing user base can tax the resources of
even the largest enterprise. To assist these customers, DIGITAL's Services
Division provides a complete portfolio of integration, operations management and
multivendor services.
- --------------------------------------------------------------------------------
[PHOTOGRAPH OF TWO BUSINESSWOMEN ENGAGED IN A
DISCUSSION; PHOTOGRAPH OF A MAN WORKING AT A
COMPUTER TERMINAL; PHOTOGRAPH OF A MAN WORKING IN A
ROOM WITH MANY COMPUTER TERMINALS.]
THE DIGITAL SERVICES DIVISION
This year, Digital formed a Services Division to focus on networked business
solutions for large and medium-sized businesses to expand customer coverage and
partner relationships -- bringing together all the resources needed to support
our customers.
This division operates in more than 100 countries and supports more than 14,000
products from 1,300 vendors. Working with Compaq, MCI, Microsoft, Avnet,
Computer Associates and a growing list of partners, the division has the
capabilities and resources to plan, design, implement and maintain multivendor
computing environments. The focus is on providing enterprise services including:
- The integration of system- and network-based solutions
- Product service and support across multivendor environments
- The management of information technology operations
Digital's portfolio of multivendor services includes our award-winning PC
Utility. This unique program provides customers with customized desktop
services, including planning, local area network design, multivendor product
procurement, staging, installation, training, help desk support and hardware,
software and networking upgrades as well as "take back" and asset recovery.
- --------------------------------------------------------------------------------
DESKTOP SUPPORT
CITIBANK AWARDED DIGITAL A $500 MILLION, THREE-YEAR CONTRACT TO IMPLEMENT,
SERVICE AND SUPPORT CITICORP DESKTOP AND LOCAL AREA NETWORKING SYSTEMS AND
SOFTWARE THROUGHOUT THE WORLD.
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24
Our Software Utility service provides a flexible approach to managing software
from the desktop to the data center. It includes software acquisition, license
management and tracking, maintenance and upgrades to help reduce support costs
and ensure the smooth implementation and integration of new applications.
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MISSION-CRITICAL COMPUTING
"THE BENEFITS OF DIGITAL'S MISSION-CRITICAL SUPPORT SERVICE IS REALLY, IN MY
OPINION, LARGELY IN THE PROACTIVE WORK AND THE PERSONAL RELATIONSHIPS THAT
DEVELOP. WE LOOK AT DIGITAL AS A TEAM TO HELP SOLVE OUR ISSUES. THE BOTTOM LINE
IS AVAILABILITY AND TIME TO SOLVE PROBLEMS. WITHOUT THIS STRUCTURE THAT WOULD
NOT BE POSSIBLE. DIGITAL HAS COME TO UNDERSTAND OUR UNIQUE NEEDS AS A CUSTOMER."
Babak Aghevli, Senior Manager Mid-Range Systems, MCI
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THE ALLIANCE FOR ENTERPRISE COMPUTING
Another major service and support initiative grew out of the Alliance for
Enterprise Computing formed by Digital and Microsoft to promote the adoption of
Windows NT across the enterprise. This comprehensive alliance includes joint
activities ranging from engineering and cross-licensing agreements to customer
support programs. Together, we are providing complete Windows NT client/server
solutions and services for both Alpha and Intel platforms.
With more than 1,000 Microsoft-certified systems engineers and solution
developers, Digital has the largest Windows support organization in the world.
We provide Windows, Windows 95 and Windows NT on-site and remote support 24
hours a day, 365 days a year. In addition, we have established 29 Microsoft
Authorized Support Centers -- more than any other Microsoft service
provider -- to support our customers and resellers.
A DISCIPLINED APPROACH TO OPERATIONS MANAGEMENT
With the growing acceptance of client/server computing, customers are looking
for customized operations management and outsourcing services. They want to work
with a company that understands both business and technology.
Outsourcing represents a rapidly growing market for Digital. We are one of the
few computer companies with extensive experience in operating and managing
multivendor computer and network environments for our customers.
By partnering with Digital, customers can augment their information technology
resources with systems analysts, network engineers, project managers,
consultants and other computer professionals. These individuals have firsthand
experience with both the business and technical aspects of data warehousing,
Internet commerce, Enterprise NT Applications, continuous computing and other
leading-edge applications.
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COMPETITIVE ADVANTAGE
"WITH DIGITAL'S HELP, INTEGRIS NOW HAS A COMPETITIVE ADVANTAGE IN TECHNOLOGY
WITH ADDED CREATIVITY AND FLEXIBILITY WHEN IT COMES TO ADDING FUTURE SITES.
DIGITAL'S EXPERTISE AND KNOWLEDGE OF MULTIVENDOR ENVIRONMENTS PLAY KEY ROLES IN
ACHIEVING OUR CORPORATE BUSINESS NEEDS AND COMPUTING GOALS." George Conklin,
CIO, Integris Health
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22
25
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PC UTILITY
"WHEN WE LAUNCHED A STATE-WIDE PROJECT TO UPGRADE ALL ASPECTS OF THE DESKTOP
INFORMATION SYSTEMS USED BY OUR REPRESENTATIVES, WE FOUND OUT JUST HOW MUCH
TECHNOLOGY HAD CHANGED AND HOW COMPLEX IT HAD BECOME. WE ALSO REALIZED THAT A
WRONG DECISION OR FLAWED IMPLEMENTATION ANYWHERE IN THE UPGRADE PROCESS COULD
HAVE A MAJOR IMPACT ON US FOR YEARS TO COME. THAT'S WHY WE SELECTED A PC UTILITY
SOLUTION FROM DIGITAL."
George Meier, Executive Director for the Speaker of the House,
State of Florida
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SYSTEMS AND NETWORK INTEGRATION
This year we combined our systems integration and network service operations
into a single business unit within the Services Division. This allows us to
manage our systems integration business as a full portfolio of services directed
toward network-intensive business solutions.
We work in partnership with the customer -- and in many cases with other
computer companies, consultants, systems integrators and prime contractors -- to
deliver complete and integrated business solutions. Together, we are ready to
tackle computer migration projects, design and implement IT infrastructures and
implement enterprise networks that integrate users with advanced information
technology.
LEVERAGING CONNECTIONS
Services play a key role in leveraging the connections between Digital and its
business partners. Digital set the standard in the industry for providing
service and support to and through our worldwide reseller network. Together we
are focusing our resources on supporting our customers as information technology
undergoes a paradigm shift to client/server technology.
[PHOTOGRAPH OF TWO BUSINESSWOMEN SHAKING HANDS.]
- -------------------------------------------------------------------------------
The Alliance for Enterprise Computing: In addition to providing a complete range
of Intel and Alpha systems optimized for Windows NT, DIGITAL has a formal
marketing, product development and customer service alliance with Microsoft. And
we are the largest Windows training and support vendor in the world.
- -------------------------------------------------------------------------------
23
26
CONNECTIONS
THE COMMUNITY AND THE ENVIRONMENT
WORKING WITH CUSTOMERS AND THE COMMUNITY
Throughout this annual report we have focused on connections. We've talked about
the way we're "connecting" with customers and business partners to help create a
world where information and ideas can be freely exchanged.
Since the company's inception, Digital has taken an active role in the
communities where we have a presence. Adding to the long list of
community-related programs we have supported over the years, we continue to make
a difference. This year, we became the first national corporate sponsor of Tech
Corps, a nonprofit, volunteer organization designed to assist U.S. public
schools in integrating technology into educational programs. But our concern for
children and their future goes beyond technology.
We have contributed more than $1 million to the National Center for Missing and
Exploited Children (NCMEC) since 1985 to help develop, publish and distribute
"KIDS AND COMPANY: Together for Safety" throughout the United States. This
program provides the knowledge children need to avoid abuse, abduction and
physical harm.
In Guatemala, India and seven other countries, we're working with Children's
International to provide basic life necessities to more than 180,000 children.
In addition, we made cash contributions to 91 children's service organizations
in 23 countries during the past year.
We want every child to enjoy a healthy environment. We recognize the global
nature of environmental, health and safety issues, and our responsibility to our
employees, customers and the communities where we live and work. Our efforts are
guided by Digital's corporate environment, health and safety (EHS) policy
statement: "Earth Vision." It provides a framework for action that ensures wise
choices today, sound goals for tomorrow and a standard for measuring our
progress. Digital is creating smart solutions for EHS issues through our
practices and policies, our collaboration with business partners and research
institutions, and our continuing excellence in information technology.
Based on our core values and in support of enhancing our business relationships,
we have a formal code of business conduct that governs our actions and business
practices. Working together, sharing information and ideas, we are leveraging
the connections between Digital and its partners, customers and the community.
- -------------------------------------------------------------------------------
IN RECOGNITION OF DIGITAL'S LONG-STANDING PARTNERSHIP WITH THE NATIONAL CENTER
FOR MISSING AND EXPLOITED CHILDREN (NCMEC), THE MASSACHUSETTS CHILDREN'S TRUST
FUND PRESENTED DIGITAL WITH ITS ANNUAL VOICE OF CHILDREN AWARD FOR ITS
"OUTSTANDING CONTRIBUTION TOWARD MAKING THE WORLD A PLACE CHILDREN CAN TRUST."
- -------------------------------------------------------------------------------
24
27

27
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES
In fiscal 1996, total operating revenues increased $750 million or 5% to $14.6
billion, following an increase of $362 million or 3% in fiscal 1995 and a
decrease of $921 million or 6% in fiscal 1994. Non-U.S. revenues accounted for
66% of total operating revenues in fiscal 1996, up from 65% and 62% in fiscal
1995 and 1994, respectively (see Note B).

Revenues from product sales for fiscal 1996 were $8.4 billion or 57% of total
operating revenues, compared with $7.6 billion or 55% of revenues and $7.2
billion or 53% of revenues in fiscal 1995 and 1994, respectively. Product sales
increased in fiscal 1996 due principally to increased revenues from the sale of
Alpha-based systems and to a lesser extent Intel-based personal computers,
storage subsystems and network products. Adjusted for the effects of divested
businesses, product sales increased 16% and 14% in fiscal 1996 and 1995,
respectively. Continued increased demand for the Corporation's UNIX-based
offerings and increased acceptance of the Corporation's Windows NT-based
products contributed to the growth in Alpha-based systems revenues in fiscal
1996.
Alpha-based systems revenues represented 29% of fiscal 1996 product sales, up
from 22% and 13% in fiscal 1995 and 1994, respectively. Revenue from Intel-based
personal computers represented 26% of fiscal 1996 product sales, unchanged from
fiscal 1995 and up from 19% in fiscal 1994. In fiscal 1996, revenues from
personal computers grew 11% compared with fiscal 1995. Following strong growth
in the first half of the year, personal computer sales declined in the second
half of the year reflecting weakened sales of desktop products to commercial
customers and competitive pricing pressures. VAX systems revenues represented 5%
of fiscal 1996 product sales, down from 10% and 19% in fiscal 1995 and 1994,
respectively, as the Corporation completed a major product transition. Revenues
from the Corporation's component businesses, including storage subsystems,
networks, software and peripheral products, represented 40% of fiscal 1996
product sales, compared with 42% and 49% in fiscal 1995 and 1994, respectively.
The decline in revenues from component businesses was attributable to the
effects of divested businesses, partially offset by strong growth in storage
subsystems and network products revenue.
In fiscal 1996 and 1995, service and other revenues were $6.2 billion, down from
$6.3 billion in fiscal 1994. Services and other revenues as a percentage of
total operating revenues were 43%, 45% and 47% in fiscal 1996, 1995, and 1994,
respectively. Increased revenues from multivendor services and integration
services were offset by a decline in revenues from Digital products maintenance
business.
During fiscal 1996, the Corporation sold its learning services business and
several small businesses. During fiscal 1995, the Corporation sold portions of
its storage business, its relational database business, a software distribution
subsidiary, a contract manufacturing business and a semiconductor facility. In
addition, as part of the Corporation's restructuring actions, the Corporation
transferred part of its business in Germany to a new, independent,
employee-owned company, effective October 1, 1994. In fiscal 1994, the divested
businesses represented 8% of consolidated operating revenues and did not have a
material effect on the consolidated net loss from operations (see Note J).

The Corporation's gross margin on fiscal 1996 product sales was 34%, compared
with 29% and 31% of product sales for fiscal 1995 and 1994, respectively. The
increase in product gross margin in fiscal 1996 was due principally to
manufacturing cost efficiencies, an increased proportion of higher-margin
Alpha-based systems revenues, and the effect of more competitive product
offerings. The decline in product gross margin in fiscal 1995 was due to several
factors, including a continued shift in the Corporation's product sales toward
lower-margin products, as well as greater use of indirect distribution channels,
partially offset by the divestment of certain low-margin businesses and
increased demand for higher-margin server products.
Gross margin on service revenues was 32% for fiscal 1996, compared with 36% and
37% of service revenues for fiscal 1995 and 1994, respectively. The decline in
service gross margin in fiscal 1996 was primarily due to the shift in the mix of
maintenance service revenues toward lower-margin multivendor service offerings,
and improved product reliability.

Research and engineering (R&E) spending for fiscal 1996 totaled $1.1 billion,
compared with $1.0 billion and $1.3 billion in fiscal 1995 and 1994,
respectively. The decrease in R&E expense in fiscal 1995 compared with fiscal
1994 was due principally to the elimination of redundant engineering efforts,
more standardized product offerings and divestments. The Corporation believes
that its level of R&E spending as a percentage of total operating revenues is
appropriate to support current operations and to offer competitive,
market-driven products.
Selling, general and administrative (SG&A) expenses totaled $3.3 billion for
fiscal 1996, approximately the same level as fiscal 1995 and down from $4.0
billion in fiscal 1994 which included $310 million of non-recurring charges (see
Note J). For fiscal 1996, SG&A expenses reflected increased variable costs
associated with higher revenue levels, increased salaries and wages and
administrative systems investments, partially offset by the favorable effects of
restructuring actions taken in the first half of fiscal 1995 and the effects of
divestments. Fiscal 1996 SG&A expenses included $72 million of gains from
divestments and asset sales (see Note J). The decrease in SG&A expenses in
fiscal 1995 compared with fiscal 1994 was due principally to restructuring
actions.
In the fourth quarter of fiscal 1996, the Corporation recorded a restructuring
charge of $492 million. The restructuring plan is intended to increase sales
productivity, further consolidate manufacturing plants and distribution sites,
improve service delivery and further reduce overhead in support areas. The
charge includes $363 million to pay for termination benefits for approximately
7,000 employees in fiscal 1997, as well as for employee termination benefits
incurred in the fourth quarter of fiscal 1996. The remaining $129 million of the
charge is for the cost of closing approximately 3.5 million square feet of
office and manufacturing space, principally in Europe and the United States.
When completed, the actions associated with the fiscal 1996 restructuring charge
are expected to result in annualized operating expense savings of approximately
$400 million. See Note E for a further description of the Corporation's
restructuring actions and related costs.
Total employee population decreased by 2,600 during fiscal 1996 to approximately
59,100. The Corporation had approximately 61,700 and 77,800 employees at the end
of fiscal 1995 and 1994, respectively.
The net effect of currency exchange rate movements on revenues was insignificant
in fiscal 1996 compared with fiscal 1995 and positive in fiscal 1995 when
compared with fiscal 1994. The effect of currency exchange rate movements on
revenues was offset substantially by similar effects on
29
32
EXPENSES AND PROFIT MARGINS (continued)
non-dollar denominated costs in fiscal 1996 and 1995. See Note I for a further
description of the Corporation's use of foreign exchange option and forward
contracts.
Interest income in fiscal 1996 was $76 million, up from $57 million and $49
million in fiscal 1995 and 1994, respectively, reflecting higher interest rates
and significantly higher cash balances. Interest expense increased to $100
million from $90 million and $73 million in fiscal 1995 and 1994, respectively
(see Note F). Interest expense related to interest rate swaps was approximately
$4 million in fiscal 1996, compared with reductions of interest expense of
approximately $1 million and $12 million in fiscal 1995 and 1994, respectively
(see Note I).
In fiscal 1996, income tax expense was $44 million on a pre-tax loss of $68
million. Income tax expense reflects several factors, including income taxes
provided for profitable operations, benefits taken from net operating loss
carryforwards and an inability to recognize currently certain tax benefits from
operating losses. Income tax expense was $18 million on pre-tax income of $76
million in fiscal 1995 and $85 million on a pre-tax loss of $2.0 billion in
fiscal 1994. Income tax expense for fiscal 1994 included a $70 million reduction
in net deferred tax assets associated with non-U.S. operations. See Note C for a
further explanation of income tax expense.
In the fourth quarter of fiscal 1996, the Corporation adopted Statement of
Financial Accounting Standard (SFAS) No. 121 -- Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of
SFAS No. 121 did not have a material impact on the results of operations or
financial position of the Corporation and there was no cash flow impact
associated with the adoption.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 --
Accounting for Stock-Based Compensation. SFAS No. 123 encourages companies to
recognize compensation costs for all stock-based compensation arrangements using
a fair value method of accounting. Alternatively, SFAS No. 123 permits a company
to continue accounting for these arrangements under Accounting Principles Board
Opinion No. 25 -- Accounting for Stock Issued to Employees, accompanied by
footnote disclosure of the pro forma effects on net income and earnings per
share had the new accounting rules been applied. The Corporation will implement
the alternative approach in fiscal 1997.

30
33
AVAILABILITY OF FUNDS TO SUPPORT CURRENT AND FUTURE OPERATIONS AND SPENDING FOR
OPERATIONS
Cash and short-term investments totaled $2.0 billion, $1.6 billion and $1.2
billion at the end of fiscal 1996, 1995 and 1994, respectively (see Note A).

Net cash generated by operating activities was $602 million in fiscal 1996,
compared with net cash used of $348 million and $375 million in fiscal 1995 and
1994, respectively. The $950 million improvement in cash generated from
operating activities in fiscal 1996 was primarily due to a $181 million decrease
in inventories in fiscal 1996 compared with an increase of $272 million in
fiscal 1995, and a lower level of restructuring related expenditures in fiscal
1996 compared with fiscal 1995.
Net cash used for investing activities was $492 million in fiscal 1996, compared
with net cash generated (including divestments) of $638 million in fiscal 1995,
and net cash used of $637 million in fiscal 1994. Capital spending in fiscal
1996 was $431 million compared with $366 million and $682 million in fiscal 1995
and 1994, respectively. In fiscal 1996, the Corporation sold its learning
services business and several small businesses generating proceeds of $156
million. The sale of property, plant and equipment generated an additional $73
million in cash. In fiscal 1995, the Corporation sold all of its shares of Ing.
Olivetti & C. S.p.A. common stock, portions of its storage business, its
relational database business, a software distribution subsidiary, a contract
manufacturing business, a semiconductor facility, property, plant and equipment
and other assets generating approximately $1.1 billion in cash proceeds (see
Note J). The Corporation increased its short-term investments by $177 million,
$31 million and $11 million in fiscal 1996, 1995 and 1994, respectively.
Net cash generated from financing activities was $150 million, $100 million and
$538 million in fiscal 1996, 1995 and 1994, respectively. The principal
financing activity for fiscal 1996 and 1995 was the issuance of stock under the
Corporation's employee stock plans, offset by the payment in each year of
approximately $36 million of dividends on preferred stock. In the third quarter
of fiscal 1994, the Corporation issued and sold preferred stock generating net
proceeds of $387 million. Dividends on preferred stock of approximately $2
million were paid in fiscal 1994.
Long-term debt was approximately $1.0 billion at the end of fiscal 1996, 1995
and 1994. At the end of fiscal 1996, substantially all of the Corporation's
available lines of credit and accounts receivable securitization facilities were
unused (see Note F).
For fiscal 1996, cash expenditures for restructuring activities were $237
million, net of proceeds of approximately $54 million from the sale of property,
plant and equipment. Cash expenditures for restructuring actions are expected to
be approximately $500 million in fiscal 1997, and $130 million in fiscal 1998
and beyond related to facilities closures (see Note E).
On July 29, 1996 the Corporation's Board of Directors authorized the repurchase
for cash, as conditions warrant, of up to 10 million shares of the Corporation's
common stock. As of August 30, 1996 the Corporation had purchased on the open
market 447,500 shares of its common stock at an aggregate purchase price of
$17,362,000, or $38.80 per share.
On August 27, 1996, the Corporation's wholly-owned subsidiary, AltaVista
Internet Software, Inc. filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
for the registration of shares of its Class A Common Stock in an initial public
offering.
The Corporation's need for, cost of and access to funds are dependent on future
operating results, as well as conditions external to the Corporation. The
Corporation historically has maintained a conservative capital structure, and
believes that its current cash position and its sources of and access to capital
are adequate to support current and future operations.
31
34
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Corporation or statements made by
its employees may contain "forward-looking" information, as that term is defined
in the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Corporation cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors,
including but not limited to the following:
The Corporation's future operating results are dependent on its ability to
develop, produce and market new and innovative products and services. There are
numerous risks inherent in this complex process, including rapid technological
change and the requirement that the Corporation bring to market in a timely
fashion new products and services which meet customers' changing needs.
Historically, the Corporation has generated a disproportionate amount of its
operating revenues toward the end of each quarter, making precise prediction of
revenues and earnings particularly difficult and resulting in risk of variance
of actual results from those forecast at any time. In addition, the
Corporation's operating results historically have varied from fiscal period to
fiscal period; accordingly, the Corporation's financial results in any
particular fiscal period are not necessarily indicative of results for future
periods.
The Corporation offers a broad variety of products and services to customers
around the world. Changes in the mix of products and services comprising
revenues could cause actual operating results to vary from those expected.
The Corporation's success is partly dependent on its ability to predict demand
and adjust production capacity accordingly, which is partly dependent upon the
ability of external suppliers to deliver components at reasonable prices and in
a timely manner; capacity or supply constraints could adversely affect future
operating results.
The Corporation operates in a highly competitive environment and in a highly
competitive industry, which include significant pricing pressures and intense
competition for skilled employees. Particular business segments may from time to
time experience unanticipated intense competitive pressure, possibly causing
operating results to vary from those expected.
The Corporation offers its products and services directly and through indirect
distribution channels. Changes in the financial condition of, or the
Corporation's relationship with, distributors and other indirect channel
partners could cause actual operating results to vary from those expected.
As the Corporation continues to implement its strategic plan and respond to
external market conditions, there can be no assurance that additional
restructuring actions will not be required. With regard to the completion of
planned restructuring actions, there can be no assurance that the estimated cost
of such actions will not change.
32
35
REPORT OF MANAGEMENT
The Corporation's management is responsible for the preparation of the financial
statements in accordance with generally accepted accounting principles and for
the integrity of the financial data included in this annual report. In preparing
the financial statements, management makes informed judgments and estimates of
the expected effects of events and transactions that are currently being
reported.
Management maintains a system of internal accounting controls that is designed
to provide reasonable assurance that assets are safeguarded and that
transactions are executed and recorded in accordance with the Corporation's
policies. This system includes policies which require adherence to ethical
business standards and compliance with all laws to which the Corporation is
subject. The internal controls process is continuously monitored by direct
management review and an internal audit program under which periodic independent
reviews are made.
The Corporation's independent accountants annually review the accounting and
control systems of the Corporation. Their audit includes a review of the
internal control structure to the extent they consider necessary and selective
tests of transactions to support their report.
The Board of Directors, through its Audit Committee, which is composed of four
Board members who are independent of management, is responsible for determining
that management fulfills its responsibility with respect to the Corporation's
financial statements and the system of internal accounting controls.
The Audit Committee meets regularly with representatives of management, the
independent accountants and the Corporation's internal auditors to review
audits, financial reporting and internal control matters, and when appropriate,
meets with the Corporation's outside counsel on relevant matters. The
independent accountants and the internal auditors have full and free access to
the Audit Committee and regularly meet privately with the Audit Committee.
Coopers & Lybrand L.L.P., independent accountants, have been engaged by the
Audit Committee of the Board of Directors, with the approval of the
stockholders, to audit the Corporation's financial statements. Their report
follows.
/s/ Robert B. Palmer
Robert B. Palmer
Chairman of the Board,
President and Chief Executive
Officer
/s/ Vincent J. Mullarkey
Vincent J. Mullarkey
Vice President, Finance and Chief
Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors,
Digital Equipment Corporation
We have audited the accompanying consolidated balance sheets of Digital
Equipment Corporation as of June 29, 1996 and July 1, 1995, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three fiscal years in the period ended June 29, 1996. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Digital Equipment
Corporation as of June 29, 1996 and July 1, 1995, and the consolidated results
of its operations and cash flows for each of the three fiscal years in the
period ended June 29, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note J to the consolidated financial statements, the Corporation
changed its method of accounting for certain investments in debt and equity
securities in fiscal 1995.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 29, 1996
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See Notes K, L and M of Notes to consolidated financial statements.
Cash dividends on common stock have never been paid by the Corporation. The
Corporation commenced paying dividends in fiscal 1994 on preferred stock issued
in March 1994.
The accompanying notes are an integral part of these financial statements.
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40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the
Corporation include the financial statements of the parent and its
majority-owned U.S. and non-U.S. subsidiaries. All significant intercompany
accounts and profits have been eliminated. Certain prior years' amounts have
been reclassified to conform with the current year presentation.
USE OF ESTIMATES The preparation of the Corporation's financial statements
requires management to make estimates and judgements that affect the reported
consolidated statements of operations and consolidated balance sheets and
related disclosures. Actual results could differ from those estimates.
FISCAL YEAR The fiscal year of the Corporation is the fifty-two/fifty-three
week period ending the Saturday nearest the last day of June. The fiscal years
ended June 29, 1996, July 1, 1995 and July 2, 1994 included 52 weeks.
TRANSLATION OF FOREIGN CURRENCIES For non-U.S. operations, the U.S. dollar is
the functional currency. Monetary assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at current exchange rates. Nonmonetary assets
such as inventories and property, plant and equipment are translated at
historical rates. Income and expense items are translated at average exchange
rates prevailing during the year, except that inventories and depreciation
charged to operations are translated at historical rates. Exchange gains and
losses arising from translation are included in current income.
REVENUE RECOGNITION Revenues from product sales are generally recognized at the
time the product is shipped. Provisions for product sales returns and allowances
are recorded in the same period as the related revenue. Service and other
revenues are recognized ratably over the contractual period or as the services
are performed.
WARRANTY Warranty service revenues are recognized ratably over the warranty
period; warranty-related costs are recognized as incurred. The Corporation also
provides warranty coverage as a product attribute on certain products. Estimated
costs to repair such products are accrued as product cost when the product is
shipped.
NET INCOME/(LOSS) APPLICABLE PER COMMON SHARE Per common share amounts are
calculated based on the weighted average number of common shares and common
share equivalents outstanding during periods of net income, after deducting
applicable preferred stock dividends. Common share equivalents are attributable
to stock options. Per share amounts are calculated based only on the weighted
average number of common shares outstanding during periods of net loss, after
deducting applicable preferred stock dividends.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Corporation considers all
highly liquid temporary cash investments with maturities of three months or less
at date of acquisition to be cash equivalents. Cash equivalents are valued at
cost plus accrued interest, which approximates market. Investments with
maturities greater than three months mature within six months of the balance
sheet date and are classified as short-term investments. Short-term investments
are valued at cost plus accrued interest, which approximates market. The
Corporation's practice is to hold these investments to maturity.

INVENTORIES Inventories are stated at the lower of cost (first-in, first-out)
or market. Inventories are routinely subject to changes in value, resulting from
rapid technological change, intense price competition and changes in customer
demand patterns. While the Corporation has provided for estimated declines in
market value of inventories, no estimate can be made of a range of amounts of
loss that are reasonably possible under various competitive conditions.

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NOTE A: SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost,
subject to review of impairment for significant assets whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable.

Classification Depreciation lives and methods
- -------------- ------------------------------
Buildings..................... 10 to 33 years (straight-line)
Leasehold improvements........ Life of assets or term of lease, whichever is shorter
(straight-line)
Machinery and equipment....... 2 to 10 years (principally accelerated methods)

When assets are retired, or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts. Gains or losses
resulting from restructuring actions are included in accrued restructuring
costs. Other resulting gains and losses are included in income.
OTHER ASSETS Other assets include long-term investments, capitalized software
development costs, goodwill, deferred taxes and other intangible assets.
Software development costs are capitalized at the time that technological
feasibility is established. These costs are amortized over no more than three
years from the date the products are available for general use and are subject
to periodic review of net realizable value.
Goodwill and other intangible assets are amortized using the straight-line
method over the estimated useful life of the asset, subject to periodic review
of impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
NOTE B: GEOGRAPHIC OPERATIONS
INDUSTRY The Corporation operates in one business segment: the design,
manufacture, sale and service of networked computer systems.
NON-U.S. OPERATIONS Sales and marketing operations outside the United States
are conducted primarily through sales subsidiaries throughout the world; by
direct sales from the parent corporation; and through various representative
distributorship arrangements, value-added resellers and retailers. The
Corporation's non-U.S. manufacturing operations include plants in Canada, Europe
and Asia-Pacific. The products of these manufacturing plants are sold to the
Corporation's sales subsidiaries, the parent corporation or other manufacturing
plants for further processing. Intercompany transfers between geographic areas
are accounted for at prices which are intended to be representative of
unaffiliated party transactions.
Sales to unaffiliated customers outside the United States, including U.S. export
sales, were $9.6 billion, $9.0 billion, and $8.3 billion for the fiscal years
ended June 29, 1996, July 1, 1995 and July 2, 1994, respectively, which
represented 66%, 65% and 62%, respectively, of total operating revenues.
The broad diversity of the Corporation's products, service offerings, customers
and geographic operations mitigate significantly the risk that a severe impact
will occur in the near term as a result of changes in its customer base,
competition, sources of supply or composition of its markets.
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NOTE B: GEOGRAPHIC OPERATIONS (continued)

The Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
109 - Accounting for Income Taxes, effective July 4, 1993. The Corporation had
previously accounted for income taxes under Accounting Principles Board Opinion
No. 11. In the first quarter of fiscal 1994, the Corporation recorded a one-time
benefit of $20,000,000 or $.14 per common share, for the recognition of
previously unrecognized tax benefits. There was no cash flow impact from the
adoption of SFAS No. 109. The standard was adopted on a prospective basis, and
amounts presented for prior years were not restated.
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NOTE C: INCOME TAXES (continued)

The gross deferred tax asset from tax loss carryforwards of $1.4 billion
represents $3.6 billion of net operating loss carryforwards on a tax return
basis which will generally expire as follows: $90,000,000 in 1998, $200,000,000
in 1999, $160,000,000 in 2000, $220,000,000 in 2001, $90,000,000 in 2002,
$700,000,000 in 2007, $500,000,000 in 2008, and the remainder thereafter.
Tax credit carryforwards will generally expire as follows: $35,000,000 in 2001,
$50,000,000 in 2002, $70,000,000 in 2003, $20,000,000 in 2004, and the remainder
thereafter.
Tax benefit arising from previously unrecognized operating loss carryforwards
amounted to approximately $190,000,000 and $42,000,000 for fiscal 1996 and 1995,
respectively.
The Corporation has recorded net deferred tax assets of approximately
$109,000,000 at June 29, 1996, reflecting primarily the benefit of net operating
loss carryforwards in certain countries. Realization is dependent on generating
sufficient future taxable income to utilize the assets. Although realization is
not assured, management believes it is more likely than not that the assets will
be realized.
As a result of statutory tax rate changes gross deferred taxes increased by
$10,334,000 in fiscal 1995. The increase was fully offset by valuation
allowances.
In fiscal 1996, 1995 and 1994, net income taxes paid were approximately
$18,452,000, $3,008,000 and $42,419,000, respectively.
In general, the Corporation's practice is to reinvest the earnings of its
foreign subsidiaries in those operations, and repatriation of retained earnings
is done only when it is advantageous to do so. The accumulated retained earnings
for foreign subsidiaries aggregated $1.9 billion at June 29, 1996. Applicable
taxes are provided only on amounts planned to be remitted . It is not
practicable to estimate the amount of additional tax that might be payable on
the foreign earnings.
NOTE D: CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS
Unamortized computer software development costs were $93,408,000 and
$100,989,000 at June 29, 1996 and July 1, 1995, respectively. Amortization
expense was $48,433,000, $59,335,000 and $67,515,000 for fiscal 1996, 1995 and
1994, respectively. Accumulated amortization was $160,785,000 and $197,419,000
at June 29, 1996 and July 1, 1995, respectively.
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NOTE E: RESTRUCTURING ACTIONS
Accrued restructuring costs and charges include the cost of involuntary employee
termination benefits, facility closures and related costs associated with
restructuring actions. Employee termination benefits include severance, wage
continuation, notice pay, medical and other benefits. Facility closure and
related costs include disposal costs for property, plant and equipment, lease
payments and related costs. Restructuring costs were accrued and charged to
expense in accordance with approved management plans.
As a result of initiatives to increase sales productivity, further consolidate
manufacturing plants and distribution sites, improve service delivery and
further reduce overhead in support areas, the Corporation accrued a
restructuring charge of $492,000,000 in the fourth quarter of fiscal 1996.
The cost of employee separations associated with the fiscal 1996 charge includes
termination benefits for approximately 7,000 employees in fiscal 1997 as well as
employee termination benefits incurred in the fourth quarter of fiscal 1996. The
majority of the employee separations will come from administrative and overhead
functions, located in Europe and the United States. Most other organizations and
functions also will be affected by the planned reduction in employees. The
fiscal 1996 charge also includes costs associated with the closure of an
additional 3.5 million square feet of office and manufacturing space,
principally in the United States and Europe.
As the Corporation continues to implement its strategic plan and respond to
external market conditions, there can be no assurance that additional
restructuring actions will not be required. With regard to the completion of
planned restructuring actions, there can be no assurance that the estimated cost
of such actions will not change.
During fiscal 1996, restructuring actions resulted in approximately 2,400
employee separations, a portion of which were covered under the fiscal 1994
restructuring plan. The number of involuntary separations was less than
originally planned due principally to a higher level of voluntary separations
and employees transferred in connection with divesting activities. However,
associated cost savings were offset by higher than planned separation costs for
certain non-U.S. employees.
The Corporation's experience in property dispositions has been consistent with
the restructuring plan provided for in fiscal 1994. In the past two fiscal
years, the Corporation has sold 6.2 million square feet of space and reduced
space under lease by 4.7 million square feet.

(1) Weighted average interest rate of 7.6% and 8.5% at June 29, 1996 and July 1,
1995, respectively.
(2) The Notes and Debentures are not redeemable prior to maturity and are not
entitled to any sinking fund. The unamortized discount and commissions relate to
these Notes and Debentures.
Principal payments during the next five fiscal years are as follows: 1997 --
$10,335,000; 1998 -- $256,564,000; 1999 -- $926,000; 2000 -- $948,000; 2001 --
$2,975,000.
In fiscal 1996, 1995 and 1994, interest paid was $116,214,000, $86,157,000 and
$76,203,000, respectively.
The Corporation had available lines of credit totaling $315,434,000 and
$308,885,000 as of June 29, 1996 and July 1, 1995, respectively. Substantially
all of these lines of credit were unused at the end of fiscal 1996 and 1995.
Commitment fees on the unused lines of credit were immaterial.
In June 1994, the Corporation entered into a five-year agreement with a major
financial institution (i) providing for the transfer and sale by the Corporation
to a wholly-owned subsidiary of the Corporation of a designated pool of domestic
trade accounts receivable (the "Receivables"), and (ii) allowing the Corporation
to sell to a group of investors an undivided ownership interest in the
Receivables for proceeds of up to $600,000,000 (the "Purchase Limit"). The
agreement includes annual commitment fees up to a maximum of 0.2% of the
Purchase Limit. During the third quarter of fiscal 1995, the Corporation elected
to amend the Purchase Limit under the agreement from $600,000,000 to
$500,000,000. As of June 29, 1996 and July 1, 1995, no interests in the
Receivables had been sold.
In May 1995, Digital Equipment Co. Limited, a wholly-owned subsidiary of the
Corporation incorporated in the United Kingdom, entered into a five-year
agreement with a major financial institution allowing it to sell an undivided
ownership interest in a designated pool of trade accounts receivable (the "UK
Receivables") to a group of investors for proceeds of up to approximately
$124,000,000 (80,000,000 pounds sterling). Commitment fees under the agreement
are immaterial. As of June 29, 1996 and July 1, 1995, no interests in the UK
Receivables had been sold.
In October 1995, Digital Equipment France S.A.R.L., a wholly-owned subsidiary of
the Corporation incorporated in France, entered into a one-year agreement with a
major financial institution allowing it to sell an interest in a designated pool
of trade accounts receivable (the "France Receivables") to a group of investors
for proceeds of up to approximately $87,000,000 (450,000,000 French francs), of
which approximately $69,000,000 was available at June 29, 1996. Commitment fees
under the agreement are immaterial. As of June 29, 1996, no interests in the
France Receivables had been sold.
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NOTE G: POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS
PENSION PLANS The Corporation and its subsidiaries have defined benefit and
defined contribution pension plans covering substantially all employees. The
benefits are based on years of service and compensation during the employee's
career. Pension cost is based on estimated benefit payment formulas.
It is the Corporation's policy to make tax-deductible contributions to the plans
in accordance with plan provisions and local laws. For the U.S. pension plan,
there were no contributions in fiscal 1996, 1995 or 1994. The assets of the
plans include corporate equity and debt securities, government securities and
real estate.
In December 1995, the Board of Directors approved an amendment to the
Corporation's U.S. pension plan effective March 1, 1996. Pursuant to the
amendment to the plan, the defined pension benefit is based on an account
balance comprised of a percentage of pay for each year of service and interest
credited on the cumulative balance. Prior to March 1, 1996, the benefit plan was
calculated based on a percentage of the employee's earnings during service to
the Corporation.
As a result of the amendment, the vested and accumulated benefit obligations of
the pension plan more closely approximate the projected benefit obligation. The
amendment did not have a material effect on the consolidated statement of
operations or on the consolidated balance sheet. There was no cash flow impact
from the amendment to the U.S. plan.
The decline in pension cost before curtailment and settlement gains since fiscal
1994 reflects the positive effects of restructuring activities and increased
returns on invested pension assets.
The net periodic pension cost for defined contribution pension plans was
$32,382,000, $6,816,000 and $12,585,000 for the fiscal years ended June 29,
1996, July 1, 1995 and July 2, 1994, respectively. The Corporation initiated
contributions to the U.S. 401(k) plan on July 1, 1995 which resulted in
increased costs for the Corporation's defined contribution plans in fiscal 1996.
The measurement dates for all plans were within 90 days of year-end.
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NOTE G: POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS (continued)

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation has defined benefit
postretirement plans that provide medical and dental benefits for U.S. retirees
and their eligible dependents. Substantially all of the Corporation's U.S.
employees may become eligible for postretirement benefits if they reach
retirement age while working for the Corporation. The majority of the
Corporation's non-U.S. subsidiaries do not offer postretirement benefits other
than pensions to retirees.
In fiscal 1996, net periodic postretirement benefits cost before curtailment
gains declined when compared to fiscal 1995 and 1994, reflecting the positive
effects of restructuring activities and lower U.S. health care cost trends.
The Corporation's postretirement benefit plans other than pensions are funded as
costs are incurred.
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NOTE G: POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS (continued)

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NOTE G: POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS (continued)
POSTEMPLOYMENT BENEFITS In the fourth quarter of fiscal 1994, the Corporation
adopted Statement of Financial Accounting Standards (SFAS)No. 112 - Employers'
Accounting for Postemployment Benefits, effective as of the beginning of the
fiscal year. This standard requires the accrual of benefits provided to former
or inactive employees, after employment but before retirement. These benefits
include, but are not limited to, salary continuation, supplemental unemployment
benefits, severance benefits, disability-related benefits and continuation of
benefits such as health care and life insurance coverage.
The cumulative effect of adopting this standard resulted in a one-time charge to
income of $71,068,000 (the "transition obligation"), or $.51 per common share.
This transition obligation represents principally the cost of providing medical,
dental and life insurance benefits to individuals in the U.S. currently on
long-term disability, during the estimated remaining period in which they will
receive disability benefits. The annual expense under the standard, exclusive of
the transition obligation, is not significantly different than the annual
expense under the Corporation's former practice. There was no cash flow impact
from the adoption of SFAS No. 112.
NOTE H: COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS Minimum annual rentals under noncancelable leases (which are
principally for leased real estate, vehicles and equipment) for the fiscal years
listed are as follows:

Total rental expense for the fiscal years ended June 29, 1996, July 1, 1995 and
July 2, 1994 was $259,349,000, $282,084,000 and $436,080,000, respectively.
LITIGATION Several purported class action lawsuits were filed against the
Corporation during the fourth quarter of fiscal 1994 alleging violations of the
Federal securities laws arising from alleged misrepresentations and omissions in
connection with the Corporation's issuance and sale of Series A 8 7/8%
Cumulative Preferred Stock (the "Series A Preferred Stock") and the
Corporation's financial results for the quarter ended April 2, 1994. During
fiscal 1995, the lawsuits were consolidated into three cases, which were pending
before the United States District Court for the District of Massachusetts. On
August 8, 1995, the Massachusetts federal court granted the defendants' motion
to dismiss all three cases in their entirety. On September 6, 1995, notices of
appeal were filed in two of the cases. On May 7, 1996, the United States Court
of Appeals for the First Circuit affirmed in part and reversed in part the
dismissal of the two cases, and remanded for further proceedings.
NOTE I: FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE OPTIONS In the ordinary course of business, the Corporation
purchases foreign exchange option contracts for periods consistent with its
committed exposures to limit potential losses from adverse exchange rate
movements on operations. The contracts relate primarily to European currencies,
Australian dollars and Japanese yen and generally have maturities which do not
exceed three months. The impact of exchange rate movements on contracts used to
hedge revenue and expense transactions is included in income in the period that
the related operating revenues and expenses are recognized. Premiums on foreign
exchange option contracts are amortized over the life of the contract.
Unamortized premiums are included in prepaid assets. The Corporation does not
anticipate any material adverse effect due to exchange rate movements over the
short-term period covered by these contracts.
FOREIGN EXCHANGE FORWARDS In the ordinary course of business, the Corporation
enters into foreign exchange forward contracts for periods consistent with its
committed exposures to mitigate the effect of foreign currency movements on the
U.S. dollar value of monetary asset and liability positions of non-U.S.
subsidiaries. The contracts are primarily in European currencies, Australian
dollars and Japanese yen and generally have maturities which do not exceed three
months. The impact of exchange rate movements on contracts used to hedge
monetary assets and liabilities is included in income in the period in which the
exchange rates change.
With respect to foreign exchange option contracts and foreign exchange forward
contracts, there were no deferred gains or losses at June 29, 1996. Also, the
Corporation does not hold or issue foreign exchange futures contracts or foreign
exchange option contracts for trading purposes.
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NOTE I: FINANCIAL INSTRUMENTS (continued)
INTEREST RATE SWAPS During the first quarter of fiscal 1994, the Corporation
entered into interest rate swap agreements, with maturities of up to 10 years,
to manage its exposure to interest rate movements by effectively converting a
portion of its long-term debt from fixed to variable rates. The net face amount
of interest rate swaps subject to variable rates as of June 29, 1996 and July 1,
1995 was $250,000,000. These agreements involve the exchange of fixed rate
payments for variable rate payments without the effect of leverage and without
the exchange of the underlying principal amount. Fixed interest rate payments
are at rates ranging from 5.72% to 5.75%. Variable rate payments are based on
the 6 month U.S. dollar LIBOR. Interest rate differentials paid or received
under these swap agreements are recognized over the life of the contracts as
adjustments to interest expense. As of June 29, 1996, deferred interest expense
on contracts which are no longer subject to variable rate payments totaled
$15,404,000. The deferred interest expense is being amortized over the original
remaining life of the contracts. Unamortized deferred losses are included in
prepaid assets. The Corporation does not hold or issue interest rate swaps for
trading purposes.
FAIR VALUE The carrying amounts reflected in the consolidated balance sheets
for cash, cash equivalents, short-term investments, accounts receivable, bank
loans, current portion of long-term debt and accounts payable approximate fair
value due to the short maturities of these instruments. The fair values for
long-term debt and hedging instruments are based on dealer quotes for those
instruments. The fair values represent estimates of possible value which may not
be realized in the future.

The face amount of hedging instruments does not necessarily represent amounts
exchanged by the parties and thus is not a direct measure of the exposure of the
Corporation through its use of hedging instruments. The amounts exchanged are
calculated on the basis of face amounts and other terms of the hedging
instruments, which relate to interest rates, exchange rates or other financial
indexes.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject
the Corporation to concentrations of credit risk consist principally of
temporary cash and short-term investments, trade receivables and hedging
instruments.
The Corporation places its temporary cash and short-term investments with high
credit qualified financial institutions and, by policy, limits the amount of
credit exposure to any one financial institution.
The Corporation sells a significant portion of its products through third-party
resellers and as a result maintains individually significant accounts receivable
balances from various major resellers. If the financial condition and operations
of these resellers deteriorate, the Corporation's operating results could be
adversely affected. Total receivables for the ten largest resellers approximated
10% of total accounts receivable at June 29, 1996.
Concentrations of credit risk with respect to other trade receivables are
limited due to the large number of customers comprising the Corporation's
customer base, and their dispersion across many different industries and
geographies. The Corporation performs ongoing credit evaluations of its
customers and generally does not require collateral.
The Corporation is exposed to credit-related losses in the event of
nonperformance by counterparties to hedging instruments. The counterparties to
these contracts are major financial institutions. The Corporation continually
monitors its positions and the credit ratings of its counterparties and limits
the amount of contracts it enters into with any one party.
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NOTE J: INVESTING AND DIVESTING ACTIVITIES
During fiscal 1996, the Corporation sold its learning services business and
several small businesses. During fiscal 1995, the Corporation sold portions of
its storage business, its relational database business, a software distribution
subsidiary, a contract manufacturing business and a semiconductor manufacturing
facility. Prior to sale and in total the divested businesses represented
approximately 8% of fiscal 1994 consolidated operating revenues and did not have
a material effect on the consolidated net loss from operations.
At the end of the second quarter of fiscal 1996, the Corporation sold its
learning services business to Welsh, Carson, Anderson & Stowe for proceeds of
approximately $80,000,000. Approximately 600 employees transferred with this
business.
In addition, during fiscal 1996 the Corporation sold several small businesses
for net proceeds of approximately $76,000,000.
At the end of the fourth quarter of fiscal 1995, the Corporation sold its South
Queensferry, Scotland semiconductor facility and related assets to a subsidiary
of Motorola, Inc. for net proceeds of approximately $128,000,000. Assets sold
included approximately $8,000,000 of inventory and $127,000,000 of net property,
plant and equipment. Approximately 530 employees were transferred to Motorola at
the time of sale.
At the end of the third quarter of fiscal 1995, the Corporation sold its
contract manufacturing business to SCI Systems, Inc. for net proceeds of
approximately $75,000,000. Assets sold included approximately $47,000,000 of
inventory and $20,000,000 of net property, plant and equipment, including a
manufacturing plant in Augusta, Maine. Approximately 700 employees were
transferred to SCI Systems, Inc. at the time of sale.
At the beginning of the second quarter of fiscal 1995, the Corporation sold its
magnetic disk drive, tape drive, solid state disk and thin film heads businesses
(the "Business") to Quantum Corporation ("Quantum") for an aggregate purchase
price of $360,000,000, generating net proceeds of $348,000,000. Assets sold
included approximately $180,000,000 of inventory and $154,000,000 of net
property, plant and equipment, including facilities in Shrewsbury, Massachusetts
and Penang, Malaysia, as well as the Corporation's interest in Rocky Mountain
Magnetics, Inc. Quantum is leasing facilities owned by the Corporation in
Colorado Springs, Colorado and leased by the Corporation in Batam, Indonesia.
Approximately 3,100 employees were transferred to Quantum upon sale of the
Business.
Also during the second quarter of fiscal 1995, the Corporation sold its
relational database business and related assets to Oracle Corporation for net
proceeds of $107,000,000. Approximately 250 employees were transferred to Oracle
Corporation at the time of sale.
In June 1992, the Corporation entered into agreements to purchase common stock
of Ing. Olivetti & C. S.p.A. ("Olivetti") and to form a strategic alliance with
Olivetti. Pursuant to these agreements, as amended, the Corporation purchased a
total of 98,533,000 shares of Olivetti common stock in fiscal 1993 for a total
investment of approximately $287,800,000. As part of the alliance agreement, as
amended, Olivetti agreed to purchase a minimum level of Alpha products from the
Corporation over a specified period of time. The Olivetti stock was recorded at
$83,800,000. The remainder of the purchase price was recorded as an intangible
asset to be amortized over a period not to exceed ten years. While the
Corporation expected to generate significant revenues from the sale of Alpha
products to Olivetti in the long term, in fiscal 1994, the sale of Alpha
products to Olivetti fell significantly short of levels called for in the
alliance agreement. In the fourth quarter of fiscal 1994, the Corporation
concluded that revenues and profits in the future, although potentially
significant, would continue below levels called for in the agreement.
Accordingly, in the fourth quarter of fiscal 1994, the Corporation reduced the
carrying value of the intangible asset by $116,000,000 to its expected net
realizable value and included this amount as a charge to Selling, general and
administrative (SG&A) expenses on the STATEMENT OF OPERATIONS. The remainder of
the intangible asset is being amortized over a period of five years.
The Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
115 - Accounting for Certain Investments in Debt and Equity Securities,
effective July 3, 1994. SFAS No. 115 expands the use of fair value accounting
for certain debt and equity securities. At the date of adoption, the Corporation
recorded a one-time unrealized gain of $64,503,000, or $.44 per common share
related to the value of Olivetti common stock. Subsequently, in the first
quarter of fiscal 1995, the Corporation sold all of its shares of Olivetti stock
for approximately $149,000,000, thereby realizing the gain. The cash flow effect
is included in the gain/(loss) on disposition and write-down of other assets in
the STATEMENT OF CASH FLOWS.
Revenue and operating results for the Corporation's Digital-Kienzle business,
acquired in fiscal 1991, fell significantly short of operating plan for fiscal
1994 and from results of prior years despite restructuring efforts and
management changes in fiscal 1994 aimed at improving results. During the fourth
quarter of fiscal 1994, plans for further restructuring actions to be taken in
fiscal 1995 were finalized.
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NOTE J: INVESTING AND DIVESTING ACTIVITIES (continued)
The Corporation concluded that the discounted cash flow, including restructuring
actions associated with the acquired business, would no longer support the
carrying value of the unamortized goodwill. Accordingly, the unamortized balance
of goodwill related to the acquisition of approximately $194,000,000 was written
off as a charge to operations. This was included in SG&A expenses on the
Statement of operations for the year ended July 2, 1994.
NOTE K: STOCK PLANS
STOCK OPTIONS AND AWARDS Under its Equity Plans, the Corporation has awarded
restricted stock to certain officers and key employees. Under such Equity Plans
and its Restricted Stock Option Plans, the Corporation has granted options to
certain officers and key employees to purchase common stock at a price
determined by the Board of Directors. Shares purchased under the plans are
either subject to repurchase options and restrictions on sales which lapse over
an extended time period not exceeding 10 years, or become exercisable ratably
over periods of up to five years. At June 29, 1996, 4,329,477 options to
purchase shares were exercisable at prices ranging from $19.25 to $153.00. In
fiscal 1992, certain options were granted under such Equity Plans which become
exercisable ratably over five years, but only if the common stock achieves
certain price performance criteria.
The excess, if any, of the fair market value of shares on the measurement date
over the exercise price is charged to operations each year as the restrictions
lapse.
In May 1994, the Board of Directors approved a program to offer employees of the
Corporation (other than executive officers of the Corporation) the opportunity
to exchange their outstanding stock options for new options to purchase a
reduced number of shares of common stock at a per share exercise price equal to
the fair market value of the common stock on the date the program was approved
(the "Regrant Program"). Under the Regrant Program, outstanding options granted
between 1985 and 1993 to purchase up to 11,854,084 shares of common stock with
an average exercise price of $59.43 per share could be exchanged for new options
to purchase up to 4,554,870 shares with an exercise price of $22.88 per share.
The new options vest over four years and have a seven-year term. As of July 3,
1994 options to purchase 5,765,914 shares had been exchanged and cancelled for
new options to purchase a total of 2,328,910 shares. During fiscal 1995, an
additional 4,476,977 shares were exchanged and cancelled for new options to
purchase a total of 1,663,430 shares. No further exchanges may occur under this
program. No compensation expense was reversed as a result of the Regrant
Program. Future expense associated with options cancelled, and not replaced by
new options under the Regrant Program, will no longer be recognized, resulting
in an expense reduction of approximately $31,000,000 over fiscal years 1995 to
1998.

EMPLOYEE STOCK PURCHASE PLANS Under the Corporation's Employee Stock Purchase
Plans, all U.S. and certain non-U.S. employees may be granted the opportunity to
purchase
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54
common stock at 85% of market value on the first or last business day of the
six-month payment period, whichever is lower. Common stock reserved for future
employee purchases aggregated 4,206,544 shares at June 29, 1996. There were
3,341,316 shares issued at an average price of $41.58 per share during the year
ended June 29, 1996; 6,085,154 shares issued at an average price of $21.96 per
share during the year ended July 1, 1995; and 6,938,772 shares issued at an
average price of $23.72 per share during the year ended July 2, 1994. There have
been no charges to income in connection with these Plans other than incidental
expenses related to the issuance of the shares. Federal income tax benefits
relating to such Plans, if any, have been credited to additional paid-in
capital.
STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS The 1990 Non-Employee Directors
Plan provided for a one-time grant of an option to purchase 5,000 shares of the
Corporation's common stock to non-employee directors. The exercise price of an
option is 100% of the fair market value per share of common stock of the
Corporation on the date the option is granted. An aggregate of 100,000 shares of
common stock are authorized for issuance under the Plan, of which 55,000 have
been granted at an average purchase price of $48.23 per share. The options
become exercisable at the rate of 20% per year, with credit given for past
service. None of these options had been exercised as of June 29, 1996. No
additional options may be granted under this plan subsequent to adoption of the
1995 Stock Option Plan for Non-Employee Directors.
The 1995 Stock Option Plan for Non-Employee Directors which was approved on
November 9, 1995, provides for annual grants to purchase 2,500 shares of the
Corporation's common stock to non-employee directors, who are initially elected
to office subsequent to January 1, 1995. The plan provides for annual grants to
purchase 1,000 shares of the Corporation's common stock to non-employee
directors elected to office prior to January 1, 1995. The exercise price of an
option is 100% of the fair market value per share of common stock of the
Corporation on the date the option is granted. An aggregate of 95,000 shares of
common stock are authorized under the Plan, of which 10,500 have been granted at
an average purchase price of $56.81 per share. The options become exercisable
ratably over 3 years. None of these options had been exercised as of June 29,
1996.
NOTE L: STOCKHOLDERS' EQUITY
On January 21, 1994, the Corporation filed with the Securities and Exchange
Commission a shelf registration statement on Form S-3 under the Securities Act
of 1933, as amended, covering the registration of debt securities, preferred
stock, depositary shares, and warrants to purchase equity and debt securities,
in an aggregate amount of $1 billion. In March 1994, the Corporation issued and
sold 16,000,000 Depositary Shares under the shelf registration statement, each
representing a one-fourth interest in a share of the Corporation's Series A
8 7/8% Cumulative Preferred Stock (the "Series A Preferred Stock"), par value
$1.00 per share. Dividends on the Series A Preferred Stock accrue at the annual
rate of 8 7/8%, or $35,500,000 per year. At June 29, 1996, there were declared
and unpaid dividends of $8,875,000. These dividends were paid on July 15, 1996.
Total dividends of $10,650,000 were declared in fiscal 1994, commencing after
issuance in March 1994.
The Series A Preferred Stock was offered to the public at $100 per share ($25
per Depositary Share) for a total of $400,000,000, leaving a balance of
$600,000,000 available for future issuance under the shelf registration. The net
proceeds of $387,000,000 from the Series A Preferred Stock offering was used for
working capital and other general corporate purposes. The Series A Preferred
Stock is not convertible into, or exchangeable for, shares of any other class or
classes of stock of the Corporation. The Series A Preferred Stock is not
redeemable prior to April 1, 1999. On or after April 1, 1999, the Corporation,
at its option, may redeem shares of the Series A Preferred Stock, as a whole or
in part, for cash at the redemption price per share of $100 ($25 per Depositary
Share), plus accrued and unpaid dividends to the redemption date. Upon
dissolution, liquidation or the winding up of the affairs of the Corporation,
the holders of the Series A Preferred Stock will be entitled to receive $100 per
share ($25 per Depositary Share), plus accrued and unpaid dividends, before any
distribution to holders of the Corporation's common stock.
The Corporation adopted a Stockholder Rights Plan in December 1989 pursuant to
which the Corporation authorized the distribution of one Common Stock Purchase
Right ("Right") for each share of outstanding common stock. Under certain
conditions, each Right may be exercised for one share of common stock at an
exercise price of $400, subject to adjustment. Under circumstances defined in
the Plan, the Rights entitle holders to purchase stock having a value of twice
the exercise price of the Rights. Until they become exercisable, the Rights are
not transferable apart from the common stock. The Rights may be redeemed by the
Corporation at any time prior to the occurrence of certain events at $.01 per
Right. The Plan will expire on December 21, 1999, unless the Rights are earlier
redeemed by the Corporation.
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NOTE M: SUBSEQUENT EVENT
In July 1996, the Board of Directors authorized the repurchase, as conditions
warrant, of up to 10,000,000 shares of the Corporation's common stock. The
shares will be used for employee stock plans.
SUPPLEMENTARY INFORMATION

Transfer Agent and Registrar for common stock:
First Chicago Trust Company of New York is the principal stock transfer agent
and registrar, and maintains the stockholder accounting records. For questions
on change of ownership, lost stock certificates, consolidation of accounts and
change of address, please contact:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (201) 324-0498
For change of address, send a signed and dated note or postcard to First Chicago
Trust Company of New York and include the name in which the stock is registered,
account number and social security number, as well as the old and new addresses.
Employee investor services:
Digital Equipment Corporation is also a stock transfer agent and registrar, and
maintains employee stockholder accounting records. Inquiries of an
administrative nature relative to employee stockholder accounting records and
employee purchases should be directed to:
Digital Equipment Corporation
111 Powdermill Road MSO1-1/L12
Maynard, Massachusetts 01754
(508) 493-3703, (508) 493-5213
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INVESTOR INFORMATION (continued)
INFORMATION ON PREFERRED STOCK
The Corporation's Depositary Shares, each representing one-fourth of a share of
the Corporation's Series A 8 7/8% Cumulative Preferred Stock (the "Preferred
Stock") (Ticker Symbol DEC PRA), is listed and traded on the New York Stock Ex
change. The Preferred Stock carries an 8 7/8% cumulative annual dividend payable
quarterly on January 15, April 15, July 15, and October 15 of each year.
Depositary For The Series A 8 7/8% Cumulative Preferred Stock:
Citibank N.A.
Address correspondence to:
Citicorp Data Distributor
404 Sette Drive
Paramus, New Jersey 07653
(800) 422-2066
STOCKHOLDER COMMUNICATIONS
The Investor Relations Department is available to assist stockholders. Investor
inquiries regarding financial information are welcome by letter, telephone or
the Internet. The annual report on Form 10-K for the fiscal year ended June 29,
1996, including schedules thereto, which is filed with the Securities and
Exchange Commission, will be sent without charge upon written request to:
Digital Equipment Corporation
Investor Relations Department
111 Powdermill Road MSO2-3/B17
Maynard, Massachusetts 01754
Telephone: (508) 493-7182
Fax: (508) 493-7633
Digital Shareholder Direct:
Financial results, quarterly and annual reports and news on the Corporation's
products and services is available via voice, fax or mail by calling
1-800-998-9332 (U.S., Canada and Latin America only).
Digital on the Internet:
Access to Corporate and financial information is also available through the
Corporation's home page on the Internet: http://www.digital.com and the Digital
Financial News & Investor Information home page at
http://www.digital.com/info/finance.
ELIMINATE DUPLICATE MAILINGS
To maintain more than one account, but eliminate duplicate mailings of annual
reports to the same address, send a copy of the label from a Corporate mailing
to the Investor Services Department, indicating the names you wish to keep on
the mailing list and the names you wish to delete.
AUDITORS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 478-5000
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61
DIGITAL believes the customer, market and
product information in this annual report is
accurate as of its publication date. This
information is subject to change without
notice. DIGITAL is not responsible for any
inadvertent errors.
DIGITAL will conduct its business in a
manner that conserves the environment. As a
company we have a tradition of achievement
in protecting the environment and in
ensuring the health and safety of our fellow
employees. A copy of our Environmental
Health and Safety Progress Report is
accessible through DIGITAL'S EHS homepage:
www.digital.com/info/ehs.
The following are trademarks of Digital
Equipment Corporation: Alpha XL,
AlphaServer, AltaVista, DEChub, DECtalk,
DIGITAL, the DIGITAL logo, DIGITAL UNIX,
enVISN, FX!32, GIGAswitch, HiNote, HiNote
Ultra, NetRider, OpenVMS, PC Utility,
RouteAbout, TruCluster, VLM and VNswitch.
The following are third-party trademarks:
Andersen Consulting is a trademark of
Andersen Consulting LLP, Apple, Newton and
MessagePad are registered trademarks of
Apple Computer, Inc. ARN and StrongARM are
trademarks of Advances RISC Machines
Limited. Avnet is a registered trademark of
Avnet, Inc. Citibank and Citicorp are
registered of Citicorp. Compaq is a
trademark of Compaq Computer Corporation.
Computer Associates is a registered
trademark of Computer Associates
International, Inc. Cybersmith is a
trademark of Cybersmith, Inc. EDS is a
trademark of Electronic Data Systems
Corporation. HP is a registered trademark of
Hewlett-Packard Company. Hughes is a
registered trademark of Hughes Aircraft
Company. Informix is a registered trademark
of Informix Software, Inc. IBM is a
registered trademark of International
Business Machines Corporation. Marco and
Motorola are registered trademarks of
Motorola Inc. MCI is a trademark of MCI
Communications Corporation. Mitsubishi is a
registered trademark of Mitsubishi Denki
Kabushiki Kaisha. Oracle and Oracle7 are
registered trademarks of Oracle Corporation.
Pentium Pro is a trademark of Intel
Corporation and Intel and Pentium are
registered trademarks of Intel Corporation.
Red Brick is a trademark of Red Brick
Systems, Inc. SAP is a trademark of SAP
Akteingesellschaft. Software AG is a
registered trademark of Software AG of North
America, Inc. Samsung is a trademark of
Samsung Electronics America Inc. Sybase is a
registered trademark of Sybase, Inc. UNIX is
a registered trademark in the United States
and other countries, licensed exclusively
through X/Open Company, LTD. Windows 95,
Windows NT and BackOffice are trademarks and
Windows and Microsoft are registered
trademarks of Microsoft Corporation. Yahoo!
is a trademark of Yahoo! Inc. All other
trademarks and registered trademarks are the
property of their respective owners.
[LOGO] PRINTED IN USA EA-C6636-87/96 09 23 210.0
COPYRIGHT 1996 DIGITAL EQUIPMENT CORPORATION
ALL RIGHTS RESERVES
PRINTED ON RECYCLED PAPER
62
LOGO
DIGITAL EQUIPMENT CORPORATION 111 Powdermill Road Maynard, Massachusetts 01754
[PHOTOS OF TWO BUSINESSMEN AND OF A MAN WORKING AT A DIGITAL PERSONAL COMPUTER.]
EX-21
7
SUBSIDIARIES OF THE REGISTRANT
1
EXHIBIT 21
SUBSIDIARIES

The following is a list of the Corporation's consolidated subsidiaries as of
June 29, 1996. The Corporation owns, directly or indirectly, 100% of the voting
securities of each subsidiary, unless marked with an asterisk.

EX-23
8
CONSENT OF COOPERS & LYBRAND L.L.P.
1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8) and related prospectuses of the Digital Equipment Corporation 1985
Restricted Stock Option Plan (No. 33-970), 1990 Equity Plan (No. 33-37631), 1990
Stock Option Plan for Nonemployee Directors (No. 33-37628), 1968 Employee Stock
Purchase Plan (No. 33-56477) and 1981 International Employee Stock Purchase Plan
(No. 33-56479), the 1995 Equity Plan (No. 33-64223), the 1995 Stock Option Plan
for Nonemployee Directors (No. 33-64223), and the Registration Statement on Form
S-3 (No. 33-51987) and related prospectuses, of our reports dated July 29, 1996
on our audits of the consolidated financial statements and financial statement
schedule of Digital Equipment Corporation as of June 29, 1996 and July 1, 1995,
and for each of the three fiscal years in the period ended June 29, 1996, which
reports are incorporated by reference or included in this Annual Report on Form
10-K.
/s/ Coopers & Lybrand L.L.P.
------------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 16, 1996
EX-27
9
FINANCIAL DATA SCHEDULE

5

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF DIGITAL EQUIPMENT CORPORATION FOR THE YEAR ENDED JUNE
29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON
FORM 10-K FOR THE PERIOD ENDED JUNE 29, 1996.